Everyone is talking about the Facebook IPO. No doubt investor demand is high as Facebook is profitable and has been growing revenue. Some speculate that the company could be valued at over $100 billion.
Another company that has announced its intention to go public is Avaya. Avaya recently filed its calendar Q1 2012 quarterly financial report with the SEC and the results paint a vastly different picture than Facebook.
In its most recent quarter, Avaya had a sequential revenue decline of 9.4% and a year-over-year revenue decline of 9.6%. Furthermore, its net loss was $162 million compared to a loss of $26 million in the previous quarter and a loss of $432 million in the year ago quarter. Not exactly what investors are looking for.
With Avaya’s over $6 billion (yes, billion with a “B”) in debt, it’s no wonder that they’ve had to continually restructure their operations. In fact, Avaya has had a restructuring program in fiscal 2008, 2009, 2010, 2011, and 2012 (source: Avaya 10-Q pages 11-13).
We know all too well the risks to Avaya customers of having too much debt as evidenced by what happened to Nortel and Nortel customers. Avaya even highlights this risk in their annual 10K filing (Avaya 10K, December 2011, page 30):
“Our degree of leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting obligations on our indebtedness.”
Perhaps a telling sign is that Avaya’s debt is rated “B3” (junk, non-investment grade) by Moody’s and “B-“ (junk, non-investment grade) by Standard & Poor’s (source: Avaya 10-Q page 60). These debt ratings are actually lower than what Nortel debt was rated 4 months before Nortel declared bankruptcy.
Whether or not Avaya will be able to go public depends on investor appetite. Those investors who do their homework may come to realize that they are not that hungry.
Avaya’s latest SEC filing can be found at: http://www.sec.gov/Archives/edgar/data/1116521/000119312512232956/d338618d10q.htm