Mitel is reportedly preparing to file for Chapter 11 bankruptcy.
As reported by Bloomberg, the Canadian enterprise communications titan is currently negotiating debt restructuring with its creditors. The company is allegedly pursuing this avenue because of declining revenues and upcoming debt maturation.
Bloomberg, citing sources with direct understanding of the negotiations but who requested anonymity, suggested Mitel’s debt instruments have seen unprecedented depreciation, with financial intermediaries assigning minimal value to the loans.
Mitel told UC Today:
Mitel has been proactively working closely with our lenders to optimise our capital structure and position the company for sustained, long-term success. All the paths we are evaluating will allow Mitel to continue operating in the ordinary course and will set us up to be an even stronger vendor and partner. Please note that any definitive updates will come directly from Mitel.”
Multiple market sources cited by Bloomberg indicate that Mitel’s $235 million first-lien term loan, set to mature in December 2025, is currently trading at a fraction of a cent on the dollar.
Mitel’s potential bankruptcy filing follows a New York appellate court ruling that upheld a controversial debt exchange despite lender objections. The restructuring included a $156 million superpriority loan, a $575 million secondary loan, and a $124 million tertiary loan, with proceeds used to repurchase legacy debt at a discount, according to a November 2022 Moody’s report.
Lenders challenged the deal, citing covenant breaches and bad faith, but the court ruled in Mitel’s favour, interpreting the agreements strictly.
The news broke less than a week after Mitel rolled out its shared UC and collaboration platform with Zoom. This exclusive UCaaS partnership with Zoom replaced its Mitel/RingCentral predecessor and was set to open up new markets for Mitel to expand into.
That momentous partnership, as well as one with Genesys announced last month, followed a 2023 change for Mitel. The company closed on its transaction to acquire Atos’s UC and collaboration business Unify in October, while there were significant changes in the C-Suite, with Luiz Domingos brought in as CTO, Charles-Henry Duroyan as its new COO, and Sophie Ames as EVP and Head of Human Resources Operations.
Mitel has hired PJT Partners, FTI Consulting, and Paul Weiss Rifkind Wharton & Garrison for strategic and legal guidance in its possible restructuring. Mitel and Searchlight Capital LP declined to comment to Bloomberg, as did PJT, FTI, and Paul Weiss, keeping details confidential.
How Concerning Might The Move To Bankruptcy Be?
With the crucial asterisk that Mitel hasn’t yet officially confirmed or denied the news, travelling down the Chapter 11 road might be the best long-term strategy for the company, given its debt accumulation.
“If this is true, it makes sense,” Zeus Kerravala, Founder and Principal Analyst at ZK Research, told UC Today. “Through the acquisitions and going private, the company incurred a significant amount of debt. Right now, they’re a high-income earning person who has two kids in college, two mortgages, a boat and is going through a divorce. That person wants to put money away for retirement and help the parents out but can’t do anything meaningful because servicing the debt takes so much of the cash.”
“For Mitel, AI and geo issues create an opportunity for them, but they need capital to execute on it,” Kerravala added, “so going through C11 makes sense to me.
Blair Pleasant, President & Principal Analyst of COMMfusion LLC, agrees it might be the shrewdest strategic move: “If that’s the direction they’re going in, it makes sense because they need to address their debt. Many companies have done that, and it’s been a good move for them in the long run without disrupting their business in the short term.”
“I also think the success of ConvergeOne and the Alan Masarek-led Avaya has had makes the process not carry the stigma it once did,” Kerravala elaborated. “It’s a financial transaction. If done correctly, they can be in and out quickly with no disruption to the business.”
Mitel’s Zoom partnership will also be considered an ideal market opportunity to become a major revenue driver for both businesses.
“Don’t forget about their deal with Zoom as an opportunity not to be missed as well,” Craig Durr, Chief Analyst and Founder at The Collab Collective. “I interviewed two people in the market, both working for Zoom, and they said they received lots of inquiries about the new partnership before it’s even been launched.”
“It sounds like their big challenge if they go forward with it is to maintain good faith with their current customers and not cause a delay from new businesses who may take a wait-and-see approach,” Durr continued.
Without the debt overshadowing the scene, compelling partnerships with Zoom and Genesys, as well as a strategic realignment around hybrid and on-prem solutions, position the company in a positive direction.
As Kerravala pointed out, the timing of entering Chapter 11, if that is to be the case, appears pragmatic.”Mitel put the strategy in place first,” he said. “A focus on hybrid/multi-cloud and on-prem, cut partnerships with Zoom and Genesys, rightsize staff and then C11.”
