Avaya Inc, a telephony company owned by TPG Capital and Silver Lake, appears to be teetering closer to a bankruptcy filing, according to press reports.
Clayton, Dubilier & Rice is having trouble closing its buy of an Avaya division, which could save the phone installer from a forced bankruptcy, the New York Post said Jan. 4. CD&R is trying to buy the call-center-software business but wants to acquire the unit without assuming pension liabilities for any of Avaya’s 15,000 employees, the story said.
Avaya, Santa Clara, California, put its call-center-software business up for sale in the summer. Goldman Sachs is advising. In November, CD&R emerged as the lead bidder for the unit, which was expected to fetch $4 billion, Reuters said.
Avaya plans to use proceeds from the call-center sale to restructure its remaining business in a prepackaged bankruptcy, the NY Post said.
Veritas Capital, a New York middle-market PE firm, is waiting in the wings, hoping CD&R’s deal for the call-center unit falls through, the story said.
“We remain in ongoing, constructive discussions with creditors to address and improve the company’s capital structure,” Avaya said in a statement Friday. “We expect further developments later this month. Meanwhile, we remain fully focused on our customers and anticipate no disruptions to our ongoing operations.”
If Avaya opts to file for Chapter 11, it would be a voluntary bankruptcy, a source said.
CD&R targets deals in the consumer, healthcare, industrial as well as business and energy services sectors. CD&R is currently fundraising for its latest flagship, Fund X, which has a $8.5 billion target. The firm has so far secured $6 billion for the pool, Reuters reported in December. CD&R, however, has never done a technology deal or a restructuring, the NY Post said.
In 2007, TPG and Silver Lake acquired Avaya in a deal valued at about $8.3 billion. The sponsors invested about $2 billion equity in the deal and have received $600 million in proceeds, the NY Post said.
Silver Lake used its third flagship fund, which collected $9.3 billion in 2007, to invest in Avaya, according to SEC filings. TPG used its fifth fund to buy Avaya, the SEC filing said. TPG Partners V LP, the vintage 2006 fund, drew in $15.4 billion.
Silver Lake and TPG own a combined 68.2 percent of Avaya, according to SEC filings.
Avaya is struggling with a $6 billion debt load stemming from the 2007 buyout. The Wall Street Journal reported in November that Avaya was expected to file for bankruptcy by year-end. The company has $1.15 billion in debt maturities due between October 2017 and March 2018, Moody’s Investors Service said in August. Avaya had insufficient liquidity to address the maturities without material asset sales, Moody’s said then.
TPG and Silver Lake declined comment. CD&R could not immediately be reached for comment.
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The sign at Avaya Inc. offices and lab in Westminster, Colorado, on Jan. 23, 2007. Photo courtesy Reuters/Rick Wilking