Avaya allowed to tap $425 mn loan by bankruptcy court

A US bankruptcy court judge yesterday approved a proposal by Avaya Inc to tap $425 million of the $725 million loan that would see the telecommunications company through its restructuring. The company said the funds were essential for continuation of operations.

The company filed for Chapter 11 bankruptcy protection on Thursday to cut its debt of about $6 billion after the failure of efforts to sell its call centre business and strike a consensual deal with creditors.

According to commentators, the bankruptcy served to highlight the challenges telecoms companies face as they transition to software and services from hardware.

"The company has taken a decisive step to rightsize its balance sheet," Pat Nash, one of the company's attorneys, told judge Stuart Bernstein at the US Bankruptcy Court for the Southern District of New York.

According to Nash, Avaya would be "marrying a balance sheet restructuring with an operational transformation."

According to the company's lawyers a significant portion of the $725 million loan, extended by an affiliate of Citigroup Inc for up to a year, was funded by Avaya's existing lenders.

"Avaya's current capital structure is over 10 years old and was put in place to support our business model as a hardware-focused company, which has evolved significantly since that time,"  Reuters reported quoting CEO Kevin Kennedy.

"Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, we need to recapitalize the company."

According to the company, the reorganization, was expected to last at least 45 to 60 days.

Avaya's revenue was down to $958 million in the fourth quarter ended 30 September from $1 billion a year earlier, financial results released Thursday showed. For the fiscal year, the company reported a net loss of $750 million.