Avaya Partners: Chapter 11 Bankruptcy A 'Solid Move' To Reduce $6B Debt, Opens Door For Rebound

Partners say that Avaya's Chapter 11 bankruptcy is a "solid" first step to getting the company back on track and are relieved that the unified communication specialist kept its contact center intact.

"Let's allow them to restructure. Let's move forward. If an organization like Citibank feels like they can give them $725 million to get through this, then it's going to be a positive thing," said Dan Silverman, president of Telanet, a Toronto-based solution provider and Avaya partner. "What they've done is a solid move. It's a good first step to getting on track and to adjust to how the market is now."

The Santa Clara, Calif.-based vendor said the filing is a restructuring effort to combat Avaya's $6 billion in debt.

[Related: Avaya Files For Chapter 11 Bankruptcy Protection, CEO Calls It The 'Best Path Forward']

"If you look at what's happened out there in the [vendor landscape], even in the contact center space – Interactive Intelligence and Genesis had to merge, Aspect Technology filed for bankruptcy last year for restructuring and came out of it fairly quickly," said Silverman.

"This is not unique to our industry. Companies are struggling to restructure," he said. "Look at even $50 billion Cisco -- they're restructuring, Mitel has their own challenges and so does ShoreTel … Really the only difference is that Avaya inherited debt and are now elevating themselves in a proper and I would say ethical manner to be able to focus back on business and growing."

The burden of debt has been following Avaya for nearly a decade since it was acquired for $8.2 billion in 2007 from private equity firms Silver Lake Partners and TPG Capital. Avaya also needs to raise $600 million for a debt maturity due in October 2017.

"Reducing the company's current debt through the Chapter 11 process will best position all of Avaya's businesses for future success," said CEO Kevin Kennedy, in a statement. "We have conducted an extensive review of alternatives to address Avaya's capital structure, and we believe pursuing a restructuring through Chapter 11 is the best path forward at this time."

Avaya said it had obtained a committed $725 million debtor-in-possession by Citibank, subject to court approval. This financing, according to Avaya, combined with the company's cash from operations, is expected to provide sufficient liquidity during the Chapter 11 cases to support its continuing business operations and minimize disruption.

Partners say there's a sign of relief in the channel that Avaya will not sell off its contact center business.

"Avaya's crown jewel and where they're going to service most of their debt is their contact center," said one top executive from an East Coast solution provider who partners with Avaya, who declined to be identified. "With some of the Oceana [software] integration they've done with Oracle, there's ways to build value in that product. I think that was the crux of it."

Avaya said it evaluated potential interest in various Avaya assets, including its contact center business, but determined that focusing on Avaya's debt structure was paramount and a sale of the contact center business would not maximize value for customers and stakeholders.

"We are keenly focused on minimizing disruption to our customers, partners, and employees and do not expect to experience any material disruptions during the Chapter 11 cases," said Kennedy.

Silverman said selling Avaya's contact center business would throw a monkey wrench into the channel.

"It would have added so much complexity of the overall solution, because their [unified communications] and contact center products are very intertwined. Whether it's in the mid-market or enterprise space, they work hand-in-hand," said Silverman.

The East Coast solution provider said there's still value in Avaya's products and future roadmap.

"I don’t think people quite understand the number of intellectual property owned and really the robustness and the saturation of the market presence that the Avaya platforms have," he said. "There's still life there."

Silverman, who's Avaya business grew by double-digits in 2016, said he is hopeful for Avaya's future.

"When we look at this a year from now, it's going to be a much rosier and better picture for Avaya and hopefully a better picture for partners as well," said Silverman.