Thread regarding Avaya layoffs

Avaya Creditor Spat Over Ch. 11 Plan Sent To Mediation

Law360, New York (September 14, 2017, 9:38 PM EDT) -- A creditor quarrel over proposed payouts in Avaya Inc.'s Chapter 11 restructuring plan is headed to mediation after a New York bankruptcy judge on Wednesday ordered the telecom giant and its creditor factions to make a good-faith attempt at resolving or narrowing lingering objections.

The mandate issued by U.S. Bankruptcy Judge Stuart M. Bernstein comes in response to objections raised by an ad hoc group of Avaya's second-lien noteholders and another group, dubbed the "ad hoc crossover group," that holds first- and second-lien debt issued by the company. The objecting creditors have argued that Avaya's plan to emerge from Chapter 11 was worked out exclusively between the debtors and senior lenders, and is structured to drive substantially all the debtors' value to first-lien noteholders.

Hoping to consensually resolve the complaints that have been raised, Judge Bernstein ordered the noteholder groups, the unsecured creditors committee and the debtors to appear in front of U.S. District Judge Cecelia G. Morris for mediation.

"The parties and their respective counsel shall participate in the mediation in good faith and comply with all directions issued by the mediator," the judge said. "Failure to do so may result in the imposition of sanctions."

The proposed plan, which is currently being voted on by Avaya's creditors, provides recoveries based on a settled company valuation of $5.7 billion. Under the proposals, Avaya will take on more than $2.9 billion in new debt and distribute cash and equity in the reorganized company to first-lien lenders to the tune of an estimated 95 percent recovery on more than $4.3 billion in allowed claims.

Second-lien lenders, on the other hand, would receive less than a 2 percent recovery on more than $1.4 billion in claims, made possible by a call right for stock in the reorganized company. Additionally, general unsecured creditors are positioned to receive $60 million in either common stock or cash after a recent plan amendment increased the class recovery pool from an 8.2 percent cap on $305 million in claims.

Another component of the plan relies on a global settlement that would shift Avaya's qualified pension obligations to the government's pension insurer in exchange for a $300 million payment and equity in the reorganized company. Should the plan be confirmed, the U.S. Pension Benefit Guaranty Corp. would assume more than $1.2 billion in pension obligations.

In response to the plan, the crossover group told Judge Bernstein last month that the global settlement underpinning the company's restructuring model "represents a carefully orchestrated scheme that was reverse-engineered to deliver over $2 billion in cash and all future value of the debtors' estates to the first-lien debtholders while delivering nearly nothing to second-lien noteholders and unsecured creditors."

The second-lien group also complained, saying the plan support agreement signed by the majority of Avaya's senior lenders "reveals the imprints of blatant self-dealing" and is an attempt to grab nearly all of the reorganized company's stock.

The first-lien lenders, meanwhile, told the court the plan meets the requirements to be confirmed, and that the objectors represent "the interests of the same out-of-the-money creditor constituency" that seems intent on trying to extort value from the first-lien group.

The parties did not respond to requests for comment Thursday evening.

Avaya and its U.S. subsidiaries filed for Chapter 11 in January, the same day the company revealed its rejection of a $3.9 billion bid for its call center software business. Its CEO cited the move as a "critical step" in its shift in focus from hardware to software and related services. The company's debt stems in large part from a 2007 go-private transaction worth about $8.2 billion.

Under a previously proposed Chapter 11 plan, Avaya sought to reduce its prepetition debt by more than $4 billion through a debt-for-equity exchange, providing first-lien debtholders with $1.4 billion in cash or new secured debt and 95 percent of the equity in a reorganized holding company.

Avaya is represented by Jonathan S. Henes, James H.M. Sprayregen, Bradley T. Giordano, Patrick Nash and Ryan P. Dahl of Kirkland & Ellis LLP.

The unsecured creditors are represented by Lorenzo Marinuzzi and Todd M. Goren of Morrison & Foerster LLP.

The first-lien group is represented by Ira S. Dizengoff, Philip C. Dublin, Abid Qureshi and Naomi Moss of Akin Gump Strauss Hauer & Feld LLP.

The crossover group is represented by Kristopher M. Hansen, Kenneth Pasquale and Sayan Bhattacharyya of Stroock & Stroock & Lavan LLP.

The second-lien group is represented by Martin J. Bienenstock and Vincent Indelicato of Proskauer Rose LLP.

The case is In re: Avaya Inc., case number 1:17-bk-10088, in the U.S. Bankruptcy Court for the Southern District of New York.

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I supposed the second lien note pays a higher interest rate......if so, that's what the extra yield should cover.

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LMAO. This article referred to Avaya as a "Telecom Giant". Ummm. Haven't they been keeping up. Avaya is DEAD.

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You would think that the contract for the second lien lenders would have spelled out what they get in the event of bankruptcy (in relation to the first lien lenders) at the time the loan was made.

It sounds like either they are trying to renegotiate the contract after the fact, or some lawyers didn't do their work up front.

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