"Avaya (AVYA) provides business collaboration equipment and communications software for customer engagement, team engagement, and networking solutions. Products include unified communications, contact centers, real-time video, data networking products, and collaboration services. Solutions are offered on premises, in the cloud, or in hybrid applications. In October 2007, a Silver Lake Partners-led private equity group completed the acquisition of AVYA for $7.04 billion in cash plus the assumption of $829 million of net debt (which roughly valued AVYA at 10.8x its run rate EBITDA). Other private equity participants included affiliates of TPG Capital Management and Neuberger Berman." From a Seeking Alpha article November 7, 2016.
SUMMARY: Avaya is a telephony company acquired in an $7.8bn buy-out by major private equity firms in 2007, and with $6bn of debt of first lien and second lien debt to service, along with major pension obligations. Second lien debt totaling $1.4bn is generally expected to be "equitized" in any restructuring, either in or out of bankruptcy. 3/30/2010: Initial BDC exposure to Company: $5mn from FS Investment. 9/30/2015: Added To Watch List 8/25/2016: Both Moody's and S&P downgrade the Company to Speculative status (CCC) 11/25/2016: Company has announced it might seek bankruptcy protection, and is trying to sell off its Call Center unit for a price as high as $4bn. To use proceeds from the sale to repay some of the debt load, convert some of the remaining debt to equity, restructure the balance under bankruptcy court protection and re-emerge with a different business model and a lower debt load in 2017. 4/12/2017: Avaya filed with the U.S. Bankruptcy Court a motion to extend its exclusivity period by 120 days, seeking entry of an order extending the Debtors’ exclusive periods to file a Chapter 11 plan and solicit acceptances thereof through and including September 16, 2017 and November 15, 2017, respectively. A couple of days earlier the Company had received court permission to sell its networking business to Extreme Networks for $100mn, $68mn of which should be in cash at closing. BDC EXPOSURE There are 3 BDCs with $31mn of exposure to the Company: all in different senior Term Loan tranches and carried at discounts to cost from 0% to 26% at September 30, 2016. Although the troubles of the Company are well known there remains uncertainty about what might happen if and when ultimately Avaya files for bankruptcy and about the proceeds that might be received from any asset sales. Judging from the market prices of the debt tranches when the potential bankruptcy was announced further write-downs in the BDCs exposure is likely to be coming, so the Credit Trend is Down for the IVQ 2016, i.e. we expect fair market values to be lower. The BDC Credit Reporter has a Credit Rating of 5, which means the Company is Non Performing and we expect a Realized Loss is likely to occur.