Avaya Inc. will meet with creditors this week for the first time since the company said it’s reviewing ways to rein in its $6 billion debt load, according to people with knowledge of the matter.
The discussions will put the software and services provider face-to-face with a group of lenders including Blackstone Group LP and Apollo Global Management LLC, who hired advisers to negotiate with the company, said the people, who asked not to be identified because the discussions are private. The creditors are pushing for the company, which private-equity firms TPG Capital Management and Silver Lake Management acquired in 2007, to halve its debt load, one of the people said.
With dwindling revenue and pressure from cloud-based upstarts and networking giant Cisco Systems Inc., Avaya will likely struggle to repay a $616 million term loan that’s coming due next year, Moody’s Investors Service said earlier this year. Avaya said last month that it hired Goldman Sachs Group Inc. and Centerview Partners to assess options to bolster its balance sheet, including asset sales.
If the company doesn’t raise enough cash through asset sales to significantly boost its liquidity, lenders would likely push for other options including a debt-for-equity swap that could cut its debt load, one of the people said.
Blackstone’s credit arm GSO Capital Partners leads the creditor group, which holds a total of $4.67 billion of Avaya’s first-lien loans and bonds, said the people. Apollo Global Management LLC, Davidson Kempner Capital Management and Guggenheim Partners are among other large holders in the group, which is being advised by PJT Partners Inc. and Akin Gump Strauss Hauer & Feld, the people said.
A second creditor group led by Franklin Resources Inc., which holds Avaya’s $1.38 billion of second-lien bonds maturing 2021, hired Rothschild & Co. and Stroock & Stroock & Lavan as advisers, a person said.
Moody’s cut Avaya’s corporate rating to Caa1 from B3 in February with a negative outlook, citing “continued declines in performance as well as concerns about the sustainability of the current capital structure.” In particular, Moody’s questioned Avaya’s ability to refinance its debt that comes due in 2017 and 2018.
“While the company could likely limp along if all maturities were pushed out to 2020, the current capital structure is impractical and at worst, prevents some customers from choosing Avaya,” Moody’s wrote.
S&P Global Ratings downgraded the company to CCC from B- in April.
Avaya has transitioned away from telecommunications to software and services, which generated 75 percent of its second quarter revenue, a separate person with knowledge of the matter said.
Representatives for TPG, Silver Lake, Blackstone, Davidson Kempner, Goldman Sachs, PJT and Rothschild declined to comment. Representatives for Avaya, Apollo, Guggenheim, Akin Gump, Franklin, Stroock & Stroock, and Centerview didn’t immediately respond to requests for comment.
Avaya’s $1 billion of 7 percent first-lien notes maturing April 2019 last traded at 73.50 cents on the dollar at 10:54 a.m. Wednesday in New York and have lost 25 percent in value in the past 12 months, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The company’s $1.38 billion of 10.5 percent second-lien bonds maturing in 2021 last traded at 28.5 cents on the dollar on June 6 and have lost more than 60 percent in value over the past 12 months, Trace records show.