Avaya files for chapter 11 bankruptcy

Networking firm's hardware roots beginning to show

Avaya, the networking, telecoms and collaboration company, has filed for US chapter 11 bankruptcy as a way of restructuring its business.

The company, which started life in 2000 as an offshoot of Lucent Technologies, says the bankruptcy filing will help it to reinvent itself as a software as a service company.

"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," said CEO Kevin Kennedy in a statement.

"Reducing the company's current debt through the chapter 11 process will best position all of Avaya's businesses for future success," he added.

Avaya, which went private in 2007, has been hidebound by its roots in the telecoms hardware business. Acquisitions, including the purchase of VoIP and Ethernet company Nortel Enterprise solutions in 2009 have not been enough to maintain Avaya's position in an increasingly competitive unified communications and collaboration (UCC) market against competition such as Microsoft, Cisco and Citrix. Later acquisitions included Sipera, Aurix and Radvision.

Last year it was reported that owners Silver Lake Partners and TPG Capital were planning to sell Avaya, and in November rumours emerged of a bankruptcy filing as the firm sought to divest itself of its call centre business. However, this latter move seems to have been put on hold. Instead, unnamed assets are to be sold off.

"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," Kennedy said.

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

Avaya said that, subject to bankruptcy court approval, an affiliate of Citigroup would provide a $725m loan for up to a year to service debts and fund its operations during the reorganisation. It plans to keep operating during the bankruptcy proceedings and said its foreign affiliates will not be affected.

Last year Avaya posted a net loss of $750m.