Hybrid communications vendor Mitel announced its Chapter 11 bankruptcy filing earlier in March, giving it a healthier economic position in the marketplace. The company said the move allows it to shed $1.15 billion in debt and cut its interest expenses by about $135 million a year.
Those moves, along with new Mitel strategies that aim to capitalize on the latest trends and market opportunities in the hybrid communications space, should help the company pull out of its recent doldrums and get back into the black, several IT analysts told ChannelE2E.
“Clearing the bulk of the debt frees up cash for Mitel to use on strategic initiatives versus servicing debt,” said Zeus Kerravala, principal analyst with ZK Research. “It is not a surprise. It was well known that when Mitel went private and then purchased Unify and other assets, they incurred a fair amount of debt. Given interest rates remain high, I heard that the amount of cash it took to service the debt was weighing on the company.”
These actions put things into perspective for Mitel, said Kerravala, as it is also faced with the changing market dynamics brought about by the emergence of AI capabilities and by competitors like NEC backing out of the U.S. “And with Avaya bailing on the mid-market, Mitel has an excellent opportunity to gain share, but it needs the money to put together channel incentives, buybacks, etc.”
Bankruptcies like this one have “become a standard process” for businesses to sort out their financial situations, said Kerravala. “Avaya and C1 both went through a similar process where it is pre-packaged and fast to execute. In both cases, there was no interruption to business operations, and we should expect the same with Mitel.”
For MSPs and channel partners, the financial restructuring after the bankruptcy proceedings should “affect the partners positively, as Mitel would have more money to put into its channel programs,” said Kerravala. Mitel will need to be clear about the process so partners understand how to handle customer inquiries.”
Mitel is still in a good place in the market, though, because, along with Avaya, it is one of only two on-premises, hybrid cloud communications vendors, he said. “And with Avaya stating that it is focusing on large enterprises, it is leaving the small to mid-market open. While the cloud has momentum, the on-prem market still dwarfs it, and it will continue in the future. And a rise in ransomware and macro issues has shifted sentiment back to private cloud, putting Mitel in a great position,” Kerravala said.
Details About Mitel’s Bankruptcy and Financial Restructuring
A Mitel spokesperson who asked for anonymity told ChannelE2E in an email response that the company is continuing to operate normally in the marketplace as it goes through bankruptcy.
“Mitel has navigated challenges that affected many in the technology industry, including the pandemic, supply chain issues, a changing capital market, increasing interest rates, and more, but Mitel has a healthy business that is performing well,” said the spokesperson. “Notably, the market is aligning around hybrid communications as organizations seek communications solutions that fit within their complex environments, especially in heavily regulated industries. Customers are choosing secure, reliable, flexible hybrid solutions, which Mitel is uniquely well-positioned to provide.”
Mitel will continue to honor its commitments to its customers, partners, and stakeholders as it continues its financial reorganization, the spokesperson said. “Mitel expects this to be a swift, streamlined process with minimal disruption … as it strengthens its capital structure in the background. Mitel is confident that the actions it is taking today will enable it to be a stronger partner for years to come.”
The company filed voluntary petitions seeking Chapter 11 relief in the U.S. Bankruptcy Court for the Southern District of Texas. Mitel’s operations outside of the U.S., Canada, and select business segments in the U.K. are not included in the Chapter 11 filing, the company said.
The company will also receive a new investment of $60 million in new money debtor-in-possession ("DIP") financing from lenders to bolster the business through the restructuring process, as well as a commitment for $64.5 million in new exit financing as part of the bankruptcy negotiations, according to the company.
The key parts of the bankruptcy are the removal of $1.15 billion in existing debt and the $135 million annual reduction in cash interest expenses, the company said.
Mitel is Pursuing a Sensible Restructuring: Analysts
Two other industry analysts also told ChannelE2E that they laud Mitel’s restructuring.
“I see this move as largely a positive one, strengthening the company's financial foundation and freeing up capital,” said Shelly Kramer, founder and principal analyst of Kramer&Co. “It is hard not to find the value in cutting annual cash interest expenses by $135 million and by reducing $1.15 billion in debt. This not only strategically positions Mitel to be able to capitalize on market opportunities and focus on growth at a time when the ability to innovate quickly and grow is a business necessity. It also allows the company to laser focus on better serving its customers and partners.”
For customers and partners, nothing should change in their relationships with Mitel, “which is exactly what they want to hear, and it will help deliver the impact to shareholders they seek,” said Kramer. “It is an efficient restructuring that appears very thoughtfully undertaken with a view toward creating a stronger Mitel.”
Anurag Agrawal, founder and chief global analyst with Techaisle, agrees.
“Restructuring its capital structure was necessary to enable Mitel to invest in the business with greater agility,” said Agrawal. “The restructuring is expected to positively impact Mitel's business partners and MSPs. The company has been engaging with its partner community and has seen a lot of interest and pipeline opportunities. The restructuring will enable Mitel to invest in its business and support its partners more effectively.”
