Cloud–tech company Fusion Connect became the latest company to file a Chapter 11 bankruptcy, and different options with regards to how the company would handle its business following the reorganization have been put into the table.
The company filed Chapter 11 in hopes that it will emerge as a stronger company. But the status is bleak as of the moment. Senior lenders, who lent the company more than $574 million, could take over the company if the recent deal is to be followed where lenders would slash around $300 million from Fusion’s debt as a compromise unless the court proceedings can come up with a more lucrative deal.
As per legal terms, Chapter 11 bankruptcy is the “chapter of the Bankruptcy Code generally provides for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11,” as written in the US court website.
Earlier this month, the bankruptcy was filed by Fusion Connect and its subsidiaries in U.S. Bankruptcy Court for the Southern District of New York. Fusion entered a restructuring support agreement (RSA) with lenders holding more than two-thirds of the aggregate outstanding principal amount of its first-lien loans.
In earlier interviews, the company’s spokesperson said that they are “seeking new owners through this sale process to build a strong path forward. If we do not receive a higher offer than their baseline, our existing lenders have already agreed to take ownership. This will significantly de-lever the business and ensure that Fusion has the financing required to continue running our business and making investments that benefit of our agents, customers, and stakeholders.”
Previous acquisition triggered the bankruptcy
Last year, Fusion made loans amounting to $680 million in order to acquire MegaPath and Birch Communications’ cloud and business-services business but the new entity that came out of the acquisition failed to meet performance expectations.
Fusion bought Birch’s cloud and business-services business, including its customers, operations and infrastructure, in a transaction valued at $600 million. It also acquired MegaPath for $71.5 million, gaining its SD-WAN, UC and security offerings.
At first, the hopes for the acquisition was high. However, fate was not generous for the company as the acquisition has eventually forced Fusion to file for a Chapter 11.
Other than the failed acquisition, there are other factors analysts are attributing to the bankruptcy like low growth network/communication trends and the debt that it created.
“Due to the lack of growth and this debt cost, it was going to be a tough row for Fusion,” he said. “Fusion was doing well before this in making the pivot to cloud-based communications, but these two acquisitions, associated debt, and slow-to-no growth increased the risk that it would be unable to pay the debt costs. In a low-growth environment, it will be hard for Fusion to turn its business around and [will] make it a lengthy process,” said Mike Sapien, Ovum’s vice president and chief analyst of enterprise services.
Asking Windstream for advice
Communication giant Windstream also filed for a Chapter 11 bankruptcy last February. It makes so much sense that Fusion is asking advice from Windstream as the cloud-computing service provider is going through the same hell as the communications company.
The meeting between the two companies was revealed by Alan Sandler, the managing partner at Sandler Partners. He said that the Fusion team is asking Windstream some insights on how to handle the procedure.
“We also know the Fusion team has spoken with the Windstream team to see how they approached processes, such as continuing to take care of customers, getting approval to paymaster agents and working with the creditors,” said Sandler.
Other concerns loom over Fusion’s openness to being acquired
Furthermore, Sandler noted that while Fusion is doing an excellent job in saying what they are supposed to say, there are still several valid concerns that loom over their heads.
“Anytime a carrier goes into chapter 11 bankruptcy protection, it’s a concern because the bankruptcy judge or trustee has ultimate authority on the approval processes for debtholders, operations or payment of commissions,” he said. “We know the Fusion channel team is saying all the right things and seems to have the best intentions to support customers and continue to pay agents their commissions. Additionally, Fusion channel management says the creditors are working with them to help them through the process. These are all very good steps,” he added.
Furthermore, the fact that Fusion is also open to being acquired presents another concern for the company.
“This has various implications in the following scenarios,” he said. “If an outside operator acquires Fusion, they could continue to run the company as is or could make changes. If the debtholders acquire Fusion, they could continue to run the company as is, or they could cut expenses and let it run out. If a liquidator acquires Fusion, they could break it up and sell off the parts.”
Nonetheless, he is optimistic that the company will eventually exit bankruptcy and continue serving its customers.
This recent development undoubtedly shakes the confidence of the company’s customers whose businesses depend on reliable business phone service.
This example illustrates that the company’s customers need to look at the overall health of the organization when selecting their communications provider. Fundamentals like employee satisfaction, staff growth, and independent review aggregators can assist business customers in their search.
Of all the prominent cloud-based phone providers listed on GetVoIP, Nextiva is a privately held company and has been gaining traction in the UCaaS marketplace. The company recently hired their 1000th employee, and their employee reviews published on Glassdoor and Comparably are upbeat and passionate, which suggests the company is healthy and a stable pick for communications services.