They took a huge loan, bought the company and funneled its "profits" to the loan and now it's bankrupt? How is that legal?
Everyone buying the stock knew what the leverage was.
Telecommunications company Avaya files for bankruptcy
51–60 of 75 posts
Re: Telecommunications company Avaya files for bankruptcy
#52Earlier quoted context omitted.
"But this was a deal designed to fail from the start." Can you elaborate on this further? I just made a comment earlier about how Avaya ended up in this situation and I have had a feeling, based on how the last few years have played out, that you might be right: I just dont understand how the owners could have run the company the way they did and make out with a profit.
What would you like to know? I read your comment and I think you pretty much get the gist of it, but if you have q's about how private equity (PE) works in this situation I'm happy to try to answer. As for this deal. First it was 10+ years so feel free to call bullshit on my memory but it felt like amateur hours as if SL/TPG let their new MBA hires run it or people just screwed up when structuring the deal and unsurp…
Great, thanks for your response. You sounds like someone who is on au fait with these kinds of deals so I'll ask you your opinion on who were the winners and losers here.
So, presumably TPG lose what ever the initially put in now that it has hit the wall. Does that mean that they will have lost money over the course of the investment or would they have found a way to slowly extract money from the quite reasonable revenue that Avaya was generating over the last 10 years? Their only regret being that they werent able to offload the company before it hit the wall. With the mortgage/LBO analogy: when the bank repossess the home it is theirs to manage. By what process does the venture guys give up ownership and wash their hands of the day to day operations?
Since this was a leveraged buyout presumably the big loser here would be who ever holds the bonds that were created to fund the buyout and whatever else debt the company holds. Is there anyway to know who they are and why they thought it was a good idea to put their money into this? Are likely to end up owners of this company after the bankruptcy is resolved?
I guess the employees will take a large hit here, layoffs all round and whatnot.
The leadership members that were put in to run the place: do they typically take any kind of a hit in scenarios like this? It seems common knowledge that KK was getting paid serious compensation for his time but it looks like the only downside for him is that he didnt get the big bonus for selling off the company. Can we expect a clearout at the top or is this up to the new owners who result from the chapter 11 process.
Re: Telecommunications company Avaya files for bankruptcy
#53Earlier quoted context omitted.
This is true, but new competitors also haven't been around as long as Avaya. Before Asterisk and other software hit the market, there were four players - Avaya, Cisco, Mitel and Nortel. Now there are dozens of large players and hundreds of medium sized ones. These companies are gaining market share in the enterprise - just checkout the exhibitor list for enterprise connect 17.
In addition, there are random local dudes who can set up an office Asterisk system based on commodity hardware for like $2000, and whom you can pay another $200 every couple of years when something needs to be changed. An Avaya system can't get close to that.
I've torn out several Asterisk systems because that random local dude grew tired of dealing with Asterisk. Toshiba, which is a competitor of Avaya, does get close to that.
Re: Telecommunications company Avaya files for bankruptcy
#54A bit off-topic, but a call-out to those tech consultants who often work remotely (using VOIP to interface with POTS): At the previous tech company I worked at, we used Avaya VOIP phones (5000+ employees). The phones could be used at home (with a remote access point - RAP - plugged into your router). One thing that always impressed me was just how clear, crisp, and low-latency the audio was for VOIP. I'd pick up the…
I'm surprised how much, as consumers, people will put up with in terms of bad audio. I think cell phones really helped lower the bar when the connections were bad but the mobility was unrivaled. I used to hate calling someone's cell phone because the land-line was generally crystal clear and responsive. Granted, things have improved a lot over the last 10 years, both in cell phones and internet calling. However, vide…
Mobile audio is awful because we are oversubscribed. My first mobile was a CDMA PCS phone. My first call on it was for a date. My date assumed I was calling from home on a land line. I was at her front door. The audio was so clean it was indistinguishable from a landline.
Later on, as CDMA phones grew in popularity, the multiplexing grew and the bandwidth shrank. Also codecs got more efficient by flattening the audio. All the atmosphere is stripped from the audio and voice calls got very sterile.
Re: Telecommunications company Avaya files for bankruptcy
#55I have been working at avaya for the last couple years and I have been scratching my head trying to understand how this company works and how it got into this situation. On one hand its a company thats hasn't made a profit in 10 years but on the other it takes in a billion every quarter. When you look at the numbers it turns out it is paying tens of millions to service the interest on its massive debt... it would be…
Based on what you described (that they have operating earnings coming in the door) this sounds like a good reorg case. Whatever they did to take on so much debt the debt service cost is no longer sustainable by the business. In this case when they require new funding (to pay off maturing debt or just to keep the business operating because suppliers/banks etc are no longer willing to extend credit) the new capital providers (in this case affiliates of Citi) would typically demand that they file for bankruptcy first, because the new lenders don't want to comingle their capital with the existing lenders. Funding provided post filing has priority claims on the assets of the company. During the bankruptcy the company negotiates with existing creditors to lower the debt service cost temporarily or permanently. If there is impairment to existing claims the equity ownership is essentially wiped out and new management is typically brought in by the creditors. Creditors may convert all or part of their claims into equity holdings in the new entity exiting bankruptcy. All of these are designed to orderly resolve claims and give the company a new chance, except the process can be drawn out if the parties involved have different ideas on how best to proceed. The best cases are when the creditors can agree with the management on a plan of resolution pre-filing and the bankruptcy court is used to bring certainty to the plan, in which case the process is often quite short. LBO debt structure is often designed to ease restructuring (with subordination) and holders are likely more concentrated and familiar with the bankruptcy process. If only bondholders are impaired this could be over relatively quickly and the pension claims will not be harmed (at least on paper). The problem is that the bondholders could be too rosy about the business prospect and not willing to impair their own claims enough for the company to be truly financially sound and in a few years the company may be back to the same process a second time.
Re: Telecommunications company Avaya files for bankruptcy
#56I have been working at avaya for the last couple years and I have been scratching my head trying to understand how this company works and how it got into this situation. On one hand its a company thats hasn't made a profit in 10 years but on the other it takes in a billion every quarter. When you look at the numbers it turns out it is paying tens of millions to service the interest on its massive debt... it would be…
As striking as it is for a company to take in a billion every quarter and still fail to make a profit, it is all to common in the telco space. I know from experience at one of the big 4 wireless carriers in the US. The inefficient mismanagement and spending decisions, specifically related to operations were astounding. I started a company (shameless plug: fifthsignal.com) that makes software to fix a lot of the ineff…
Hey, plenty of experience in the gsm telecoms space. Currently doing some consulting with telecom co's shoot me a mail username at ZyeLabs.net. see how we can colab. Could refer you to some guys. One of our clients wanted to do a POC to pull logs from the RAN side into Hadoop but the vendors like Huawei and ZTE keep their kit locked down. Even refusing to supply spec on file formats.
Re: Telecommunications company Avaya files for bankruptcy
#57Earlier quoted context omitted.
In addition, there are random local dudes who can set up an office Asterisk system based on commodity hardware for like $2000, and whom you can pay another $200 every couple of years when something needs to be changed. An Avaya system can't get close to that.
I've torn out several Asterisk systems because that random local dude grew tired of dealing with Asterisk. Toshiba, which is a competitor of Avaya, does get close to that.
Asterisk is completely scriptable. Somehow I doubt that Toshiba system can do what we've needed done with respect to different stations ringing at different times of day, complicated dialing permissions, logging Charter Business outages, recording customer service interactions, etc. Each of those things required a small amount of labor, and no equipment purchases.
Of course our dude might leave the industry someday. Then we might have to hire a different dude.
Re: Telecommunications company Avaya files for bankruptcy
#58Earlier quoted context omitted.
In addition, there are random local dudes who can set up an office Asterisk system based on commodity hardware for like $2000, and whom you can pay another $200 every couple of years when something needs to be changed. An Avaya system can't get close to that.
I've torn out several Asterisk systems because that random local dude grew tired of dealing with Asterisk. Toshiba, which is a competitor of Avaya, does get close to that.
> Asterisk is completely scriptable.
I'm absolutely positive Asterisk is better than Toshiba in that regard. I've invented some absolutely hideous hacks to get Toshiba systems do complicated call flow. But for a minuscule office with less than 8 phones, say a chiropractor or hand made guitar manufacturer, Toshiba does the basics, does it well, and is much easier to install. The systems don't do much, but they do it well. The pbx can hang in a damp and dirty location for years and still work. Internet service here is too unreliable to have a hosting solution or sip trunks, unless you want to pay AT&T thousands a month. The wiring can be 50 year old 25 pair, and the phones work fine. Businesses don't want to switch to ip phones since they don't have the cabling infrastructure for it.
Re: Telecommunications company Avaya files for bankruptcy
#59This has been coming for a long time. First, AT&T spun off their less profitable stuff into Lucent, and then Lucent spun off their dog investments into Avaya. It's all part of the plan.
Re: Telecommunications company Avaya files for bankruptcy
#60Earlier quoted context omitted.
I think this is pretty standard in the pbx business. The manufacturers don't give out the complete documentation for the system, so it is useless without paying money to your local dealer. Your local dealer doesn't want to help you with a used system, he'd prefer to sell you a brand new one. Source: I work for a dealer.
I worked for a dealer. The configuration utility for Cisco PBXes (piece of crap, by the way) can only be downloaded by certified Cisco partners. Or BitTorrent.
Hell, even the firmware + config can only be downloaded that way. This means if you got used phones that were configured for the proprietary SCCP, you wouldn't be able to reconfigure them as SIP phones without paying the big bucks. Yes, I know about Asterisk's chan_sccp.