Avaya TV

Avaya Restructuring Progress Report

Kevin Kennedy highlights how Avaya continues to make significant progress in the debt restructuring process that began in January of this year. 


[00:00:00]
>> Thank you all for joining me. The purpose of today's update is to provide a snapshot as well as some context for something that you will have read about, which is Avaya's debt reorganization. An important milestone took place, we filed with the court our official Avaya plan of reorganization.

[00:00:16]
This is an important step and it establishes an expectation for how we will emerge with a set of defensible and confirmatory viewpoints. First on company evaluation, second on creditor recoveries and third what the post emergence Avaya will look like. Before I get into the specifics, I'd like to give you a little bit about the plan for the reorganization and I go back to some context.

[00:00:43]
As you all know on January 19th, we filed a petition for Chapter 11, and that was really to focus on the reorganization of the debt. There are a number of notable events that took place. One was after we did that, in fact, I should back up and remind you that the reason we did it was our debt structure was anachronistic, meaning it was over a decade old.

[00:01:06]
It was very, very complex, so many people are participating in a credit at different tiers or different ways of participating. And lastly it was large, so $6 billion of debt which means that there's an incredible amount of debt service to take on after that period of time. We had to advance the business model to be able to continue over that period of time to pay the debt service.

[00:01:26]
But it was continuing to be a drain and it had essentially consumed all the equity of the company. So the first step was to file that pause for protection. The second is in order to do that and to do it safely we had to have what we call debtor in possession debt, which gave us enough money.

[00:01:44]
Over $700 million, as a matter of fact, to protect us should suppliers or others want new terms and conditions that would be adverse to the company. And so that particular piece took a lot of negotiation. It was essentially a dead offering. It was a very successful one. It was oversubscribed by about five times.

[00:02:03]
And so very successful, but that's because we had a very attractive interest rate. The next event that took place was the formation of a creditor committee. This is really seven institutions, people such as Flextronics, AT&T, the Communications Workers of America, I won't name all of them. But they are important to look at the unsecured pieces of the franchise or the enterprise.

[00:02:25]
The next event really is a series of events which are hearings that allow you to continue business as usual. And as most of you know, we have been continuing and delivering on that promise to customers. And so keeping a commitment to our customers that we will be operationally consistent, is a very strong piece of the success of going through a process like this.

[00:02:45]
I'm happy to tell you that, so far, all of the customers that I have spoken to, which now I think I've done over 175 customer calls. Have continued to see our people show up and be great ambassadors despite the fact that we're going through a process that is difficult.

[00:03:00]
The next piece is the piece that just occurred yesterday, which is this filing of our restructuring plan. And in that particular plan you will see a number of things that are spelled out that are very important. It requires a lot of work and analysis to begin to put together the facts so that the court, as well as the creditors, can look at that set of facts and minimally come to a confirmatory decision that these are the facts that you got, and recoveries and other outcomes of that.

[00:03:31]
For us the first piece is evaluation, the second piece is the recoveries of various creditor organizations which ultimately translate to who will own the company going forward. And lastly is the post emergence realities of our debt reorganization, which determines the amount of debt that the company will have, the debt service and so forth and so on.

[00:03:53]
Some of the key things that you probably already read in the news, but let me underscore them because they are important. And they are really important in terms of making the company very, very viable going forward as well as lowering the risk. The first is the debt level that is anticipated upon emergence is about one third of the current.

[00:04:13]
So we move from $6 billion in debt to $2 billion in debt. The second is the debt service or, more specifically, the interest that will be paid as to reduce by over $300 million a year. And lastly that, the recoveries are largely in the favor of the securitized debt holders.

[00:04:31]
So these are the debt holders that received somewhat lower interest rate through the years. But they did that because they ended up owning or having a lien on the asset and these are the people who most likely become the owners of the company. For the company, that composite that I just laid out for you is really a much lower risk.

[00:04:52]
It'll allow to have a debt structure, that by the way, will be in a firm position. We're not otherwise changing for seven or more years, so if a customer was to ask us when's the next moment of time we have to worry about you. It's not for a very long time.

[00:05:11]
And the bottom line is it delivers the stability of a company that we need to continue to build. I would suggest to you that the remaining process has fewer events of note, more of it will be done in negotiations, sometimes between creditors as well as with the company and our advisers.

[00:05:33]
The remaining piece will also be done in court and those elements we will be able to see and they will become more visible because there are specific hearing dates. But probably nothing more noteworthy than to say that this was the most important threshold to establish because this puts under one roof the facts, the valuation, the recoveries, and the plan that becomes the straw proposal for all other things that follow.

[00:05:58]
Our advisers will still communicate to our board that we are at the stage of the process where the remaining piece of the process should unfold and be concluded in the summer of 2017. And that's the great news, because as we are in this runway to the exit we now have to begin rebuilding and redefining the company for the future under a much smaller debt load.

[00:06:22]
And all the things that are the priorities as we become a new company. And so it's a very, very exciting time for us. And I hope you realize that the importance of this filing and the hard work that many of our team in finance, legal, marketing, and so forth have done.

[00:06:38]
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