Avaya Inc., the veteran unified communications company, said this week that it’s filing for Chapter 11 bankruptcy protection for the second time in its history, while announcing a plan that will slash $2.6 billion of debt from its balance sheet.

The company’s filing in a Texas court revealed that it has agreed a deal with its creditors. It added that the restructuring plan had “overwhelming support” from more than 90% of its secured lenders.

Through the restructuring plan, it will “eliminate more than 75% of its debt,” the company said. As a result, its total liabilities will shrink from $3.4 billion now to about $800 million, allowing it to continue running its business.

Avaya said in its filing that “revenues from capex-based purchases (software license and support and hardware) have continued to decline over the past several years, consistent with industry trends and customers’ preference to shift towards cloud-based solutions.”

The situation grew worse for Avaya when its subscription business first began to slow during fiscal 2022. The company managed to raise $600 million in financing last July, but even with that funding, it was unable to turn things around.

Avaya’s bankruptcy has been an option on the table for some time. Last August, the company warned that it had “substantial doubt” about its ability to continue operating as a going concern, saying it would miss its third-quarter fiscal 2022 revenue targets by some distance.

That came after the company hired Alan Masarek (pictured) as its new chief executive officer in July. He had previously pulled Vonage America LLC from the brink of bankruptcy before going on to sell it to Telefonaktiebolaget LM Ericsson AB.

In a statement announcing the bankruptcy, Masarek said he joined Avaya to strengthen its capital structure and realize its business transformation. “We are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success,” he said of the plan.

Avaya was founded back in 2000 after spinning off from Lucent Technologies Inc. and debuted on the stock market later that year. In 2007 it became a private company in an $8.2 billion deal led by Silver Lake Partners and TPG Capital. That appears to be when its problems started, as it remained a private entity for a full decade until declaring bankruptcy for the first time in January 2017. After emerging from that process, it went public again at the end of the year.

The company is a major player in the unified communications technology business, and it’s also involved in networking. It started out as a provider of communications, and later, networking hardware. But for the last six years has been pushing its cloud contact center and collaboration software.

Enterprises use its software to manage their contact centers and to enable business collaboration. It has established a strategic partnership with RingCentral LLC too, with that company helping to develop and sell its cloud-based offerings. RingCentral is also a major financial backer of Avaya, having invested $500 million in the company in 2019.

Avaya’s bankruptcy highlights the challenges faced by traditional hardware firms as they pivot to selling software-based products as-a-service. It’s a slow process that involves a radical redesign of the company’s core offerings and business model, and clearly it doesn’t always work out as planned.

Hyoun Park, an analyst with Amalgam Insights, told SDxCentral that Avaya also missed a big opportunity when the COVID-19 pandemic helped to accelerate digital transformation. At the time, the collaboration and contact center markets were growing rapidly, but Avaya’s debt obligations “prevented it from executing in these areas,” he said.

Avaya said it believes it will emerge from its latest bankruptcy proceedings in a much healthier state. It said it will exit bankruptcy in 60 to 90 days as a private concern armed with a fresh $780 million in funding that will be used to invest in growing its business.

Most likely, Avaya’s debt restructuring has been in the works for some time, and it could turn out to be a smart move that sets the company up for its next phase of growth, said Liz Miller of Constellation Research Inc.

“Now, arguably, they hit send on that cloud communications strategy a few years too late,” Miller added. “But, they are closing the gap with their Avaya Experience Platform and the Avaya Cloud Office offerings. What we will be keeping an eye on is how they continue to deliver on their announced technology innovations and roadmaps.”

Analysts were divided over the future prospects for Avaya. Charles King of Pund-IT Inc. told SiliconANGLE that in addition to the fresh funding, Avaya possesses some valuable intellectual property assets too, owning more than 4,000 existing and pending technology patents.

“One interpretation of its lenders’ willingness to support the restructuring plan is that they believe Avaya can be rebuilt into a functional, profitable business again,” King said. “Alternatively, it could be that the new funding will enable Avaya to keep operating and support its existing customers and suppliers while its owners look for ways to profitably sell off its assets. Or we could see a combination of both approaches, resulting in Avaya emerging as a leaner and more focused vendor. In any case, the company’s long and strange journey doesn’t appear to be over yet.”

Rob Enderle of the Enderle Group was less convinced about Avaya’s prospects, however. He told SiliconANGLE that Avaya is one of the last surviving remnants of yesteryear’s telecommunications industry and has struggled to reinvent itself for the modern age.

“It has historically been undermarketed, and given the need to change its image from an obsolescent telecom firm to one that is more forward-looking, it continues to struggle to be relevant, which doesn’t bode well for its long-term future,” he said. “Avaya looks like a company that is running out of time.”

Photo: Avaya/Facebook