TEXT-S&P rates Avaya Inc

Fri Oct 26, 2012 10:00am EDT

Oct 26 - Standard & Poor's Ratings Services said today that it assigned its
'B' issue rating and '2' recovery rating to Basking Ridge, N.J.-based
telecommunications solutions provider Avaya Inc.'s proposed $1.4 billion term
loan B-4 due 2017. The proposed term loan B-4 has a springing maturity of July
2015, conditioned on net leverage, the occurrence of an IPO, or repayment or
refinancing of at least $750 million of outstanding notes due 2015. The B-4 term
loan amends and extends the company's B-1 term loan due 2014. 

This transaction does not affect our 'B-' corporate credit rating or stable 
outlook on the company. We expect Avaya to reestablish positive operating 
trends over the next 12 months while maintaining "adequate" liquidity. Because 
of weakening end markets in Europe, deferral of U.S. government-related 
information technology (IT) hardware purchases, and general softness in IT 
hardware purchases, we expect EBITDA generation for the next 12 months to 
erode from the $883 million we calculate for the 12 months ended June 30, 
2012, which treats certain restructuring charges as operational expenses. 
Discretionary cash flow is likely to be negative for 2012 and remain negative 
over the next 12 months, as profits remain elusive and residual restructuring 
charges related to rightsizing its operations continue, albeit below 
prior-year levels.

The rating derives considerable support from the adequate liquidity 
assessment, which we believe will remain intact over the next 12 months. On 
Sept. 30, 2012, cash amounted to $337 million and the company had availability 
of about $425 million under revolving credit facilities due 2016. We expect 
cash uses to include about $400 million of cash interest expense, $130 million 
of capital expenditures, $170 million of pension funding, and about $150 
million of cash restructuring costs over the coming 12 months. Leverage for 
the company is very high, at about 9.1x for the 12 months ended June 30, 2012, 
including underfunded pension adjustments and operating lease adjustments. 


RATINGS LIST

Avaya Inc.
 Corporate Credit Rating            B-/Stable/--

New Ratings

Avaya Inc.
 Senior Secured
  Term loan B-4 due 2017            B
   Recovery Rating                  2
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.