The South African subsidiary of US-based unified communications solutions provider Avaya is upbeat about the company's latest move to exit bankruptcy following a deal with its creditors.
In a global statement issued yesterday, the company says it has entered into a plan support agreement (PSA) with holders of over 50% of its first lien debt, including certain members of the Ad Hoc Group of First Lien Creditors.
In addition, the company has reached agreement with US Pension Benefit Guaranty Corporation (PBGC) to provide for the termination of the company's obligations under the Avaya Pension Plan for Salaried Employees and the related transfer of those obligations to PBGC, with the support of the Ad Hoc First Lien Group.
Avaya has filed an amended plan of reorganisation and disclosure statement reflecting the terms of these agreements. The parties have agreed for a reduction of Avaya's debt by more than $3 billion from pre-filing levels.
It points out that the PSA results from extensive negotiations among Avaya and members of the Ad Hoc First Lien Group.
The company says it will work to build consensus around its updated restructuring proposal, which is estimated to provide second-lien lenders with less than a 2% recovery on more than $1.4 billion in claims.
Those creditors would, however, receive a call right for stock in the reorganised company. Additionally, $305 million in general unsecured claims are likely to provide returns of only 8%, according to Avaya's court filings.
"We are very pleased to have reached these agreements with these key stakeholders in our restructuring process, the Ad Hoc First Lien Group and PBGC," says Kevin Kennedy, president and CEO of Avaya.
"This is an important milestone in the Chapter 11 process and marks Avaya's progress towards our goal of emerging a stronger, more competitive company. Further, we believe this is a positive and beneficial outcome for our stakeholders. With a creditor-supported and confirmable plan of reorganisation in place, we now have a clear and viable path to emerge from Chapter 11 in the near-term."
Avaya and its US subsidiaries filed for Chapter 11 bankruptcy protection in January, the same day the company revealed its rejection of a $3.9 billion bid for its call centre software business.
Kennedy cited the move as a "critical step" in its shift in focus from hardware to software and related services. The company's debt stems in large part from a 2007 go-private transaction worth about $8.2 billion.
Under a previously proposed Chapter 11 plan, Avaya sought to reduce its prepetition debt by more than $4 billion through a debt-for-equity exchange, providing first lien debt holders with $1.4 billion in cash or new secured debt and 95% of the equity in a reorganised holding company.
Danny Drew, MD of Avaya SA, says while Avaya has been working through the Chapter 11 process in the US, the South African business has progressed strongly.
"This agreement provides a clear and viable path to exit Chapter 11 in line with our strategy. This is an important milestone as we work to emerge as a strong and competitive company in the coming weeks," Drew says.
"Over the last two years, we have been vocal about the transformation of the South Africa business; we recognised the need to restructure in order to align to the demands of the local market, to deliver software and services that local organisations need, and ensure the success of our customers.
"The transformation is proving positive - last year we reported that Avaya South Africa closed its fiscal 2016 with its strongest quarter in eight quarters, and the business has continued to build from there. I am pleased to note this progress has continued with the local business to date. We take great pride with the level of confidence and support that we continue seeing from our customers and partners in South Africa."
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