A group of bondholder investors have accused Avaya of ‘massive fraud’ in a lawsuit brought against the multinational tech firm in the US this week.
The lawsuit for $125 million was filed on Feb 1 by the plaintiffs, including Angelo Gordon & Co., Canyon Partners and Mariner Investment Group, at New York Supreme Court, according to Bloomberg.
The investors claim to hold unsecured convertible notes with a value north of $100 million, issued to them in 2018. They claim Avaya’s board misrepresented its fiscal quarter results ending in March 2022 and looked to refinance the notes to raise new funds.
The lawsuit brought by the bondholders revealed they continued to hold onto their notes based on the fiscal report, but they now believe it was falsely misrepresented.
During the lawsuit, the debt holders have said the convertible notes — due repayment this year — are “substantially worthless” because trading prices have collapsed.
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Avaya’s Recent Financial Issues
By July 2022, Avaya was still working to move to the cloud, which had stalled in recent quarters. The vendor was recently forced to raise $600 million in funding, and the stock fell more than 90% since the beginning of the previous year. During the financial crisis, Avaya fired its CEO, Jim Chirico, replacing him with ex-Vonage boss Alan Masarek.
When the term loan closed in July, an audit committee on the board of directors and its audit committee investigated the firm’s third-quarter financial results. It disclosed it had used proceeds of the loan to repurchase $129 million of notes back from other investors. The value of the leveraged loan subsequently plummeted.
The financial troubles continued.
In early August, Avaya reported a net loss of $1.48 billion. The company forecasted revenue of $575 million to $580 million in its third-quarter results, below previous guidance. Analysts expected the vendor to make $604 million, but it lost about $125 million. Since December, it has been veering towards a Chapter 11 filing and possible bankruptcy for the second time.
Avaya recently appointed Jill Frizzley to its Board of Directors following a nomination from RingCentral. Frizzley has two decades years experience advising boards on financial restructuring, mergers and acquisitions. The appointment came in line with RingCentral’s partnership with the vendor. Avaya also said it “remains committed to its strategic partnership with RingCentral”.
