Avaya Accused of “Massive Fraud” In Bondholder Lawsuit

The bondholders claim to have lost more than $125MN

Avaya Accused of
Contact CentreLatest News

Published: February 7, 2023

Charlie Mitchell

Avaya allegedly misled investors about the company’s finances and management, per a lawsuit filed by bondholders in New York.

The claimants suggest that they lost over $125MN because of the “fraudulent” maneuvers of the Avaya board.

These alleged moves came before Alan Masarek took the CEO hotseat.

Indeed, the plaintiffs’ story of events starts in 2018, shortly after Avaya came out of bankruptcy.

At the time, Avaya issued $100MN in unsecured convertible notes. Such notes represent short-term debt that converts into company equity.

In May 2022, Avaya attempted to raise more money by refinancing the notes after reporting seemingly promising Q2 results.

At the time, former President and CEO Jim Chirico stated during an earnings call: “The significant progress we saw this quarter signifies our strategy is taking hold, and this shift is reflected in our revised second-half guidance.”

After, Avaya contacted the plaintiffs – alongside other debtholders – to secure a new loan. In doing so, the suit claims that Avaya indicated its finances, management, and liquidity “were sound and that prospects were great.”

With this guidance, many investors kept hold of their convertible notes, and reports suggest that some invested $80MN in new money into the business.

Then, when the loan closed, the situation began to unravel. Indeed, the plaintiffs – which include Angelo Gordon & Co., Canyon Partners LLC, and Mariner Investment Group – state the fraud “began to become apparent almost immediately afterwards.”

From there, the suit alleges that the business disclosed it had used the loan to buy back $129 million of notes from other investors.

Shortly after, Avaya fired Chirico, and in stepped Masarek, who then had the unenviable task of relaying the news that its revenues dropped by 13 percent year-over-year (YoY) in Q3.

Then, against convention, Avaya did not invite business analysts onto the call to dig deeper into the results or his comments.

Nevertheless, Masarek’s team brought in advisors for an internal probe of its earnings, which – according to Yahoo! Finance – missed previous forecasts for Q3 by 50 percent.

Unfortunately, much of the damage had been done, with its shares plunging by 98 percent since February 2022.

In their suit, the debt holders summarized:

The convertible notes have been rendered substantially worthless, given that their trading prices have collapsed to near zero and given that there is substantial doubt about whether Avaya can continue as a going concern.

Indeed, as of February 1, 2023, when the plaintiffs sued, Avaya’s stock price settled at $0.41.

Moreover, according to Bloomberg, the 2023 convertible notes are now worth approximately five cents in the dollar. The term loan is roughly 59 cents.

Aggrieved, the plaintiffs argue that Avaya failed to disclose information and painted a false picture when marketing the new loan – with Goldman Sachs Group Inc. and JPMorgan Chase & Co – which closed in June.

CX Today has reached out to Avaya to get its perspective on the lawsuit, but is yet to receive a reply.

However, the news will undoubtedly give Masarek another painful headache, even if it’s very much directed at the former CEO – with the case titled: “A6 Capital Management LP v Chirico”

Also, it comes after rumors that the business will file for Chapter 11 bankruptcy, with the new leader battling to reassure Avaya customers of the vendor’s future.

To do so, he set out his “innovation without disruption” game plan in December, which Avaya hopes will resonate with its remaining customer base.

At the end of 2022, this included 90 percent of Fortune 100 companies.

As Avaya continues to battle past these troubling stories, maintaining such loyalty from this customer segment – as businesses weigh up cloud migrations – will become mission-critical.

Yet, such a challenge may prove enormously tricky for the Avaya team if such negative stories keep coming to light.




Brands mentioned in this article.


Share This Post