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Writing Memo Open Letter 2

Avaya Chapter 11 Bankruptcy Filing: Corporate Treasurer Explains Strategy

John Sullivan

John Sullivan

With some carefully chosen words, Avaya Corporate Treasurer John Sullivan explains Avaya’s recent chapter 11 filing without ever uttering the word “bankruptcy.” He also positions Avaya as a healthy business that’s performing well.

So why did Avaya file for chapter 11 bankruptcy protection? Sullivan explains the situation in a letter published by Network World. In many ways he makes a compelling case for Avaya’s future. Among the data points he shared:

  • Software and services now generate 75% of Avaya’s revenues.
  • Customer satisfaction scores are more than 20 points ahead of Avaya’s key competitors, though he doesn’t mention the source of that claim.
  • All of Avaya’s recent products are virtualized and run on various hardware platforms — which essentially means the company isn’t force feeding its Avaya hardware on customers.

Money and Market Shifts

Read the letter closely, and Sullivan essentially says Avaya took on too much debt on the wrong terms at the wrong time during two perfect storms: The 2008 financial crisis, and the shift from hardware to as-a-service consumption.

The chapter 11 filing, he asserts, will fix those problems without harming customers. His key statement on those points:

“Restructuring through chapter 11 will reduce Avaya’s debt burden and corresponding interest expense, enhancing our financial flexibility and enabling further investment in innovation and growth. We continue to support mission-critical infrastructure and services in all sectors, including education, government, technology and healthcare. The restructuring will enable us to focus on our core mission and future success. It remains business as usual for our company and we are keenly focused on minimizing disruption to our customers, partners and employees. “

Avaya Pensions and Chapter 11 Bankruptcy Filing

It sounds promising and I understand why Avaya filed for chapter 11 bankruptcy protection. But there’s one core audience that Sullivan failed to address: Avaya retirees who depend on the company’s pension program as part of their retirement incomes. Are those Avaya pension plans at risk? It’s too soon to say.

For ongoing updates, Avaya retirees should check in with the National Retiree Legislative Network, which operates an Avaya Retirees Chapter. That organization is building an email list to keep retirees looped in on any additional developments.

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2 Comments

Comments

    Mahesh Cholakara:

    Is it more a question of paying too much for the business in 2007 (which unfortunately was funded mostly with debt, which became unsustainable without the cash flows to back it up)?

      Joe Panettieri:

      Agreed. Similar to private equity raising too much debt to buy media companies that were too dependent on old advertising models…

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