Avaya debt plunges on going concern warning, 10-Q filing delay

Debt backing Avaya Holdings Corp. dropped today after the company issued a going concern warning, announced it’s working with its advisors to assess options related to its 2.25% convertible notes due June 2023, and provided additional preliminary third-quarter financial numbers. Avaya also filed an NT 10-Q, a Form 12b-25, saying that, as a result of issues related to the company’s weak results, it would not be able to file its Form 10-Q for the third quarter ended June 30 on time.

Citing ongoing expenses, including the cost of transitioning from a “cap-ex licensing model to a subscription and cloud model,” Avaya said it is working with its advisors “to assess its options” regarding the June 15, 2023 maturity of the 2.25% convertible notes, but it added that “there can be no assurance as to the certainty of the outcome of that assessment.”

Avaya said the latest quarter’s “substantially lower revenues” than previously expected, plus the overhang of the convertible notes that mature in under a year, have combined to leave “substantial doubt about the company’s ability to continue as a going concern.”

It also said its audit committee has commenced separate internal investigations to “review the circumstances surrounding” the weak third-quarter results and to “review matters related to a whistleblower letter.”

The company reported revenue of $577 million for its fiscal third quarter ended June 30, a decline of 20% from the year-ago equivalent period. Adjusted EBITDA for the latest quarter was $54 million, down nearly 70% from $173 million in the same period last year. Gross margin declined to 44.9% in the third quarter, down from 55.6% last year.

The company’s 6.125% first-lien notes due 2028 plunged 8.25 points on the latest developments, to trade as low as 48 on relatively even flows. The bonds plumbed a new low of 45.5 last week after the company originally slashed third-quarter earnings guidance and replaced its CEO. Avaya’s new first-lien term loan, which was placed in late June, also took a hit today, falling roughly three points, with bids now in the mid-60s.

In July, S&P Global Ratings downgraded Avaya to CCC, from B-, retaining a negative outlook. Avaya’s first-lien senior secured term debt was also downgraded to CCC from B-.

Avaya (NYSE: AVYA) is a provider of digital communications software, services and devices for businesses.

* Updated at 12:36 pm ET on Aug. 9, 2022, to clarify headline.

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