Avaya Inc., Santa Clara, Calif., is seeking court approval to transfer a defined benefit plan underfunded by $1.1 billion to the Pension Benefit Guaranty Corp. as part of a bankruptcy reorganization plan, according to court documents filed Monday with the U.S. Bankruptcy Court in New York.
The proposal — approved by the company, first lien secured creditors and the PBGC — calls for the company to keep its pension plan for hourly workers and transfer one for salaried employees to the PBGC. The terms of the agreement call for Avaya to pay the PBGC $300 million and issue it 7.5% of common stock in the reorganized business, according to court papers.
PBGC officials said in a statement that Avaya sponsors two significantly underfunded pension plans; the one for salaried employees, which has been frozen since 2003, and the one for hourly workers, where benefit accruals continue.
The salaried employees plan is 58% funded, with assets of $1.5 billion and liabilities of $2.6 billion. The hourly employees plan is 57% funded with assets of $800 million and liabilities of $1.4 billion. Avaya also sponsors a non-qualified, supplemental pension plan for certain salaried retirees that is not insured by the PBGC.
Avaya filed for bankruptcy protection in January, and initially proposed keeping both PBGC-insured plans, but the company and its secured creditors since concluded that terminating the plan for salaried employees is necessary for the company to emerge from bankruptcy, the PBGC's statement said.
In a separate statement, Avaya said the agreement resulted from "extensive negotiations" with parties holding more than 50% of the company's first lien indebtedness. "With a creditor-supported and confirmable plan of reorganization in place, we now have a clear and viable path to emerge from chapter 11 in the near term," Avaya President and CEO Kevin Kennedy said in the statement.
Avaya will continue to seek support from other stakeholders before an Aug. 23 court hearing to approve the plan.