Select creditors in Avaya have signed non-disclosure agreements, as conversations with management regarding balance sheet negotiations advance, according to three sources familiar with the situation.
The plan to go restricted comes as the company recently delivered a business plan to advisors for certain creditor groups, sources continued. A centerpiece of negotiations centers on how the issuer will address the 2023 maturity on its converts, sources added.
Prior to the latest round of negotiations, some creditors had pitched a plan that revolved around an extension of the 2023 convert maturity and some type of paydown for the B-3 term loan, said two additional sources familiar.
The company’s liquidity profile has been at the forefront of investor concern, following the late July release of disappointing preliminary 3Q22 earnings
Subsequently on 9 August, Avaya disclosed it was unable to file its 10-Q report on time and, furthermore, the borrower said it is engaged with advisors to explore options related to the 2023 maturity on its convert notes and “determined that there is substantial doubt about the company's ability to continue as a going concern,” according to a press release.
The company’s advisory roster includes Evercore and Kirkland & Ellis, as previously reported.
The earnings turmoil coupled with concerns related to the borrower’s financial health galvanized creditors to organize across Avaya’s capital structure. Akin Gump is serving as legal counsel to a group of Avaya’s legacy first lien term lenders, while a group of crossholders is working with Sullivan & Cromwell as legal counsel, as reported. An ad hoc group of new money (B-3) term lenders organized with Paul Weiss, Glenn Agre and FTI Consulting.
Earnings-wise, the company disclosed a 68.8% year-over-year plunge in adjusted EBITDA to USD 54m in 3Q. During its recent syndication process, Avaya guided EBITDA in the USD 140m to USD 150m range, as reported.
On a constant currency basis, quarterly revenue eased to USD 577m, representing a 20% YoY decline.
At quarter-end, the issuer had USD 217m of cash. After adjusting for the July 2022 financing and the partial use of proceeds from the repurchase of USD 129m in convert notes, cash would stand at USD 404m with an additional USD 221m of restricted cash held in escrow, according to the 3Q earnings report.
In late May, Avaya’s management held calls with certain credit investors to discuss options for addressing its USD 350m 2.25% convert notes due June 2023, as banker Goldman Sachs explored some type of financing, as first reported by Debtwire.
Subsequently, on 9 June, Avaya launched a proposed USD 500m term loan, but the deal was ensnared in turbulence, as investors angled for improved compensation and document changes amid an uneven earnings performance.
Ultimately, the deal’s final structure was split into two tranches — a downsized USD 350m SOFR+ 1,000bps (1% floor) senior secured term loan due 2027, and USD 250m 8% convert notes due 2027. The TL came with a 10-point upfront fee.
Its USD 800m Libor+ 425bps legacy term loan due 2027 was last quoted 47.625/49.875, compared to 73/75.167 on 13 July, according to Markit. Its newest S+ 1,000bps (1% floor) term loan due 2027, which closed 12 July, was quoted 61.75/66.25 up from 53.25/57.912 on 18 August, but down from a 73/75.167 context on 13 July.
Its 2.25% converts due 2023 last changed hands at 40 on 11 October, compared to 97.063 on 11 July, according to MarketAxess.
An Avaya representative declined comment.
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