After Bloomberg reported last week that Mitel Networks Corp. was preparing to file for Chapter 11, today the telecommunications company announced has done so, stepping into an agreement with its senior lenders to optimize its capital structure and recapitalize its debt.
In 2018, Searchlight Capital Partners took Mitel private and has been the bulk shareholder since then. With this week’s financial transaction, Mitel has entered into an agreement with an Ad Hoc Group of its senior lenders, junior lenders and other stakeholders to place a brand new ownership structure in place, ending Searchlight’s ownership of Mitel.
To execute the restructuring, Mitel will employ a prepackaged plan and file voluntary petitions in search of debt relief under Chapter 11 of the Bankruptcy Code. Historically, Chapter 11 restructuring was a protracted, drawn-out process that might put a lengthy pause on company operations until the proceeding was complete.
Over the past few years, each Avaya and C1 (formerly ConvergeOne) have used this process to enter and exit Chapter 11 with virtually no interruption to their business process. In Mitel’s case, there is no such thing as a impact to customers, partners or employees, and so they expect to finish the method in 60 to 90 days.
Once the financial transaction is complete, Mitel’s debt can be reduced significantly. The corporate has received a commitment for $60 million of new-money debtor-in-possession or DIP financing from among the lenders to support the business through the restructuring process. Once approved by the court, the DIP financing and Mitel’s existing working capital will fund the day-to-day operations throughout the Chapter 11 process. Mitel has also received a commitment of $64.5 million of recent exit financing when the plan is consummated. The brand new debt can be used to support its continued go-forward operations.
Success post-restructuring is determined by several aspects. That is akin to a person filing for bankruptcy. If the person has a high-income paying job but is riddled with bank card debt, clearing the payment obligations sets the person up well for the long run. If the person has no job, is unemployable and a high-debt load, corrective motion, equivalent to going to varsity, before filing for bankruptcy is crucial to make sure success.
With the previously mentioned examples, Avaya went through Chapter 11 under Chief Executive Alan Masarek, but the corporate structurally still had its challenges. Since then, it replaced him as CEO and recent head honcho, Patrick Dennis, seems to have a cogent strategy in place specializing in the Global 1500.
C1 was in an identical position to where Mitel is today and is an ideal example of how this process can work. In April 2024, the corporate went through an identical restructuring and cut about $1.4 billion in debt. The systems integrator had gone on a buying spree and bought several smaller value-added resellers and system integrators to create the massive company we all know today. Despite the high money flow, debt was holding it back and because it went through its Chapter 11 process, the corporate has been much stronger and capable of serve its customers higher.
Mitel’s business operations are currently strong and have seen a resurgence as its hybrid cloud strategy takes hold. The challenge has been servicing the debt, particularly at these high rates of interest that left the corporate little capital to work with. This process will lead to Mitel’s balance sheet being deleveraged by roughly $1.15 billion and its annual money interest payments to be reduced by $135 million.
For Mitel, the timing of this is true. The corporate has a powerful product roadmap in place. It has built a hybrid cloud portfolio and has partnerships with the likes of Zoom and Genesys for purchasers that need a SaaS delivered offering. Though the trend for unified communications and call center has been to maneuver to the cloud, there continues to be strong demand of on-premises solutions.
And with Avaya bailing on the mid-market and focusing only on large customers, it leaves Mitel because the only provider of on-premises/hybrid cloud solutions for the midmarket, giving it an enormous base of shoppers to go after. It’s price noting that Mitel has evolved its portfolio to serve the needs of world firms but given the shortage of competition in midmarket, that’s the corporate’s-low hanging fruit.
Also, due to lots of the global macro issues like security and outages, together with the potential of artificial intelligence, there was a rebirth of interest in hybrid cloud solutions validating the strategy the corporate put in place two years ago. If Mitel desires to create channel incentives, offer customers buybacks or other strategies to go after these customers, it needed the capital and now it has access to more as much of their debt has been eliminated.
I had a likelihood to speak with Mitel CEO Tarun Loomba in regards to the restructuring. “That is something we’ve been working on for some time,” he said. “We knew we had to handle our capital structure to set ourselves up for long-term success. This can be a proactive step that enables us to take a position within the business, proceed innovating and support our customers’ and partners’ evolving needs for secure, reliable communications solutions without missing a beat.”
Loomba further shared that Mitel’s strategy is to guide the hybrid communications market by leveraging their significant customer base and incumbency advantage, attract recent customers with revolutionary hybrid solutions and services, and, as this announcement demonstrates, strengthen its core business to drive profitable and predictable growth.
For Mitel customers, this ought to be viewed nearly as good news. Firms that proceed to make use of Mitel accomplish that because they’ve embraced the private, hybrid cloud model for communications. With a much bigger give attention to AI, security and compliance, there can have been some query as as to whether Mitel had the resources to take a position in its platform to make sure customers were getting the most recent AI capabilities with the crucial security and guardrails. This also gives Avaya customers that wish to remain on-premises or use a hybrid model a viable choice to migrate to as they proceed to shift all resources to the G1500.
There have been many rumors regarding Mitel’s future and the restructuring indicates it’s here to remain for the foreseeable future. After the acquisition of Unify (former Siemens Enterprise) the corporate has about 20% share in UC seats globally, and with this financial reset, it could actually be more aggressive in growing its share.
These decisions are never easy, but for Mitel, this was the proper decision to make. AI is acting as an accelerant to innovation and alter in UC/CC, and being hampered by debt was only going to carry it back. That is the proper move to take control of its future and are available out stronger on the opposite side.
Zeus Kerravala is a principal analyst at ZK Research, a division of Kerravala Consulting. He wrote this text for SiliconANGLE.
Image: Mitel
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