Canadian technology stalwart Mitel Networks Corp. has filed for creditor protection, armed with a restructuring plan supported by most of its lenders that will slash its debt and interest costs.
Mitel’s U.S. arm filed for Chapter 11 protection Monday in the U.S. Bankruptcy Court for the Southern District of Texas in Houston and said it had entered into an agreement with a group of its lenders and other stakeholders to recapitalize its debt.
If the plan is approved, Mitel’s debt will shrink to US$160-million from US$1.15-billion as annual cash interest expense drops by US$135-million. The prepackaged plan would come with US$60-million of new debtor-in-possession financing from some lenders to bolster its business through the restructuring.
Mitel has also received commitments of US$64.5-million of new financing to support its operations once restructuring is complete. Mitel’s Canadian subsidiary is also filing for relief under Canada’s Companies’ Creditors Arrangement Act to recognize the U.S. case as a “foreign main proceeding.”
“We are confident the steps we are taking to optimize our capital structure will make us a stronger company primed for efficient and sustainable growth,” chief executive Tarun Loomba said in a release.
Mitel has 65 million end users in 146 countries, with 4,000 employees, mostly in the U.S. and Canada, and about US$1-billion in annual revenue.
Mitel, founded in Ottawa in 1973 by Terry Matthews and Michael Cowpland, has struggled for years. After Mr. Matthews bought back into the company a second time in 2000, it became a leading consolidator of the declining market for on-premise communications systems for medium-sized enterprises.
Mitel went public for a second time in April, 2010, but struggled to create shareholder value. It was shifting into the growing business of cloud-based communications when Toronto private-equity firm Searchlight Capital Partners LP bought Mitel for US$2-billion in 2018.
In a declaration filed with the Texas court, Mitel’s chief financial officer Janine Yetter blamed the company’s woes on “a confluence of industry and other external headwinds that created unanticipated costs and adversely impacted the company’s operations and liquidity.”
She stated that while Mitel prioritized investing in unified communications delivered over the internet after the buyout, it “ultimately fell behind other market competitors in driving innovation around video and chat-based collaboration.”
The COVID-19 pandemic demand for Mitel’s office-based traditional telecommunications products and services, and related global supply chain interruptions, led to rising costs for its telephony hardware.
Mitel tried to shift its business to meet the new challenges of supporting hybrid work arrangements following the height of the pandemic, but its liquidity was constrained. It entered into a partnership with rival RingCentral Inc. that “became plagued with numerous disputes” related to payments, Ms. Yetter said. Mitel exited the partnership last year.
A 2022 recapitalization intended to address liquidity issues prompted some junior lenders to sue Mitel and other lenders for violating their rights. The proposed restructuring deal includes an agreement to settle that litigation.
Mitel continued to face liquidity challenges and last year retained advisers to explore strategic alternatives and transactions to improve liquidity. It did a handful of deals in 2024, including a US$17-million asset-backed financing and struck a partnership with Zoom Communications Inc. to offer the video conferencing giant’s service through its platform.
But by November, facing the maturity of legacy senior term loans a year later, Mitel determined it wouldn’t be able to pursue a refinancing of its existing indebtedness nor service existing interest expenses past March 31, Ms. Yetter stated.
That prompted Mitel to negotiate with lenders to hammer out a consensual prepackaged restructuring. Mr. Loomba said in the release Mitel’s “strengthened capabilities at the end of this process will ensure our ability” to meet the market’s evolving communication needs “for years to come.”
Editor’s note: This article has been updated to state that Mitel has 4,000 employees and annual revenue of about US$1-billion. Incorrect information appeared in an earlier version.