C1 Bankruptcy: $1.8 Billion in Debt, Company Partially Blames Avaya

The C1 bankruptcy filing shows the IT service provider seeks to clear $1.2 billion in debt, blames losses on interest rates, problems with an OEM partner and credit downgrades.

Dave Raffo, MSP News Editor

April 11, 2024

3 Min Read
C1 bankruptcy update

C1 seeks to clear $1.2 billion in debt and projects a return to post-tax profit by 2027, according to its Chapter 11 bankruptcy filing.

Last week C1 said it reached agreement with most of its lenders and other stakeholders on a plan to reduce approximately 80% of the debt from its balance sheet. C1’s prepackaged Chapter 11 filing in the United States Bankruptcy Court for the Southern District of Texas allows it to pay vendors and employees in full while restructuring debt.

The Bloomington, Minnesota-based solution provider said it had more than $1.8 billion in debt, approximately $21.4 million in cash on hand, and $155 million in accounts payable. C1, which rebranded from ConvergeOne last November, has more than 3,000 employees and more than 6,000 customers worldwide.

According to the C1 bankruptcy filing, its management team and restructuring advisors “have worked diligently to develop a comprehensive strategy that will allow the company to access necessary funding and restructure its funded debt enabling the company to de-lever its balance sheet and position itself for future growth.”

C1 sells IT, communications and collaboration solutions to enterprise customers. Its focus areas include cloud, security and networking.

C1 also identified three challenges that led to Chapter 11:

  • A highly leveraged capital structure following a spate of acquisitions brought about significantly higher costs as interest rates rose. C1 said increased interest rates between March 2022 and August 2023 raised the interest on its funded debt by approximately $55 million on an annualized basis. C1 acquired more than 20 companies since 2006, with seven acquisitions between January 2019 and January 2022. The 2019 spree followed private equity firm CVC Capital Partners’ $1.8 billion all-cash acquisition of C1.

  • Customer purchasing delays caused by financial distress of major OEM partner Avaya in late 2022 and early 2023. The filing did not identify the partner, but said the partner filed bankruptcy in February 2023, which is when Avaya filed for Chapter 11. C1 identifies unified communications vendor Avaya as a core partner.

  • Downgrades of its credit ratings caused supplier pressures and credit reductions.

The problems with Avaya led to lower sales and slowed development of C1 products and services, the filing said. The C1 bankruptcy filing said those factors depressed 2022 and 2023 sales. C1 reported revenues of approximately $1.5 billion for 2023, roughly the same as for 2022.

C1 took steps to cut costs, increase liquidity and improve its balance sheet throughout 2023. These measures included bringing in a new management team headed by CEO Jeffrey Russell in January 2023. It also reduced headcount and implemented other cost-cutting measures that it expects will result in more than $100 million in savings. C1 also received a series of loans in 2023 from PVKG Lender, which is controlled by C1’s majority owner, CVC. PVKG Lender provided approximately $160 million to C1 in 2023.

C1 Bankruptcy: Company Projects Profit by 2027

C1’s bankruptcy filing included financial projections through 2028, calling for steady non-GAAP income growth. C1 forecasts income of $864 million for the rest of 2024, increasing to $1.5 billion for 2025, $1.6 billion for 2026, $1.8 billion for 2027 and $1.9 billion for 2028. They forecast C1 will become profitable before tax in 2026, and profitable after tax in 2027. C1 projects a combined post-tax loss of $59 million from the rest of 2024 through 2026, followed by profit of $25 million in 2027 and $119 million in 2028.

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About the Author(s)

Dave Raffo

MSP News Editor, Channel Futures

Dave Raffo has written about IT for more than two decades, focusing mainly on data storage, data center infrastructure and public cloud. He was a news editor and editorial director at TechTarget’s storage group for 13 years, news editor for storage-centric Byte and Switch, and a research analyst for Evaluator Group. In addition to covering news and writing in-depth features and columns, Dave has moderated panels at tech conferences. While at TechTarget, Raffo Dave won several American Society of Business Publication Editors (ASBPE) awards for writing and editing, including for column writing.

Raffo covers the managed services industry for Channel Futures. His reporting beat includes the MSPs, key vendors and tech suppliers with managed services programs, platform providers, distributors and all key players in this sector of the market. Dave also works closely on the Channel Futures MSP 501 and our live events.

Raffo has also worked for United Press International, EdTech magazine, Windows Magazine and Data Center Intelligence Group (DCIG) in reporting, editing and research analyst roles.

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