Summary:
- On June 28, 2022, Avaya (NYSE: AVYA) announced a significant cut in Revenue and EBITDA projections.
- Avaya Holdings Corp. (AVYA) has submitted a petition for reorganization under Chapter 11 of the bankruptcy code following weeks of conjecture.
- In early January Investors filed a class action complaint alleging Avaya (AVYA) and its Leaders were misleading shareholders by failing to provide the Company’s efficient internal control over financial reporting in several areas.
- On January 12, 2023, Bloomberg reported that Avaya Holdings Corp. (AVYA) has held talks with lenders to discuss a plan that might mean selling the company as part of a bankruptcy filing.
- Back in 2017, Avaya (AVYA) already filed for Chapter 11 protection and was unable to restructure its debt, however, it came back in 2018 to trade on the NYSE.
Introduction
The telecommunication company Avaya Holdings Corp. (NASDAQ: AVYA) has a history of swinging in the market and always has financial problems. These problems got them to file for bankruptcy in 2017 due to debts, but they bounced back from it and got back to trading. Now, the company is in the middle of a new drama that might end with delisting the company forever.
What happened?
On February 15, 2023, the New York Stock Exchange announced the beginning of the delisting process for the common stock of Avaya Holdings (AVYA). The NYSE suspended the stock immediately after the company's disclosure on February 14 that it made petitions for relief under Chapter 11 of the U.S. Bankruptcy Court in Texas.
This came after a devastating year for the telecommunications company. In 2022, Avaya (AVYA) made several layoffs and downsizes and even changed its senior management after dishonoring the prior financial strategies. Former CEO, Jim Chirico, was replaced by Alan Masarek in August. Also, changing its CFO, Kieran McGrath, and appointing Rebecca Roof as an interim. Not to mention the resignation of Stephen Spears, the former chief revenue officer, from his role in October last year. All these changes resulted in a big stock loss of 48% on July 29, 2022.
With these serious challenges facing the company, Avaya (AVYA) was behind schedule in announcing its revenue report on June 30 last year. Which in turn required an investigation from the SEC. According to the company's management, this investigation was expected to be long. The management said that they're trying to get back on track and fix "material weaknesses" in their financial documents.
Since last summer, Avaya was receiving multiple hits. The most important one was the failed debt deal with banks. Avaya (AVYA) had cut a deal with JPMorgan (ticker: JPM) and Goldman Sachs (ticker: GS) to sell bonds and loans for the firm. The deal collapsed quite quickly when the firm notified it would miss earnings forecasts.
Investors’ Complaint against the Company
In early January 2023, investors initiated a class action complaint against Avaya (AVYA). The lawsuit claims that the Company and its Leaders made inaccurate and deceptive statements about the Company's operations, business, and prospects throughout the period covered by the lawsuit. The Management is accused of neglecting to reveal problems with the Company's internal control over financial reporting, not implementing adequate controls for its whistleblower policies and ethics and compliance program, and that the Company's financial situation was deteriorating, possibly casting doubt on its ability to persist as a going concern.
Steps in the right direction?
Avaya (AVYA) has made statements on the background of its bankruptcy announcement, saying that it's doing financial restructuring to get out of the situation. As a result of this restructuring, it is anticipated that around 75% of the outstanding debts, amounting to $3.4 billion, will be eliminated, leaving approximately $800 million. Additionally, the company will receive $780 million in funding to sustain its operations. Several investors announced their will to help Avaya (AVYA) with its restructuring process. The most important one was RingCentral (ticker: RNG), which announced on Wednesday, its extended and expanded agreement with Avaya (AVYA), describing it as a "strategic partnership" in its report on Friday.
According to Avaya (AVYA), the roughly $780 million of new financing, combined with its existing cash reserves and cash flow from continuing operations, should provide significant liquidity to sustain Avaya both during and following the restructuring procedure. The company will resume its operations and services according to statements. Reports say that the company will be private after this maneuver and not go public again. At least on a short-term scale.
Will Avaya be able to pay back all its debts?
Avaya (AVYA) stated on Tuesday that it intends to utilize an accelerated, prepackaged court-supervised approach to promptly execute the financial restructuring process, which is expected to be concluded within 60 to 90 days. The company claims that this process will not have an impact on its essential stakeholders, such as customers, strategic partners, channel partners, suppliers, vendors, or employees. Furthermore, according to the terms of the RSA, vendors, and suppliers will be compensated in full.
So, this clearly says that most of the investors are getting paid. According to Bloomberg, this plan was nearly agreed on with lenders in January 2023. The remaining issue here is how the company will pay shareholders. The company said that it's not possible to think of this at the moment, even the employees who are going to keep their jobs – most likely – won't possess a valuable share in the company as the stock was worthless. In another word, shareholders from Avaya's point of view are at the very bottom of the list. The management is trying to pay back its major lenders and creditors. According to the Bankruptcy Code, the priority goes to secured creditors with collateral, then administrative costs – such as lawyers – and after that comes taxes at the same level as employees owed wages. Next up are vendors and suppliers. At last, comes the shareholders. So basically, they might be the only loser in that game. This scheme compelled multiple investors to file a lawsuit in New York State Court against Avaya's finances and management claiming a gigantic fraud that cost them to lose $125 million.
Can Avaya come back from this?
Considering the history of Avaya (AVYA) with Bankruptcy, many think that the Company can revive itself. Avaya (AVYA) filed for Chapter 11 back in 2017 and managed to come back. The Company only took a year to emerge from its last Bankruptcy. The situation isn't the same this time, but Avaya possesses assets, a large customer base, and most important partnerships that could help it stand again, keeping in mind that Avaya's roots are traced back to the giant AT&T (T).
Conclusion
The situation with Avaya (AVYA) is still obscure regarding the shareholders, and all the news coming from the management is not good, not to mention the class action case against the Company. For now, the common stock no longer existed on NYSE. The restructuring is expected to take from 2 to 3 months and as time goes more news is coming regarding the direction of the firm in the future.
