What happened
Rapidly mounting debt and an analyst's price target downgrade were the two punches knocking Avaya Holdings (AVYA) stock to the floor on Tuesday. Even on a bleak day for the wider stock market the communications software specialist did particularly badly, falling almost 15% in price.
So what
Already heavily burdened by indebtedness, Avaya announced last Friday that it had secured $600 million in new financing. Of this amount, $350 million consists of senior secured term loans, and the remainder in exchangeable senior secured notes. Both come due in 2027.
Although Avaya professed to be happy with the arrangement, with CFO Kieran McGrath quoted as saying that it "supports and accelerates our business model transformation and addresses our convertible notes maturing in June of next year," others had a more negative opinion.
Tuesday morning, Cowen analyst Lance Vitanza wasted no time in making a deep cut to his price target on the specialty tech company's stock. He now feels it is worth only $1.25 per share, down from the preceding $6, although he's maintaining his market perform (i.e., hold) recommendation.
In a new research note, Vitanza wrote that Avaya's new debt "appears far costlier than we had imagined and with respect to its ongoing cloud transition the crisis has raised questions that could take several quarters to answer."
"We would remain on the sidelines for now," he added.
Now what
This is only the latest in a string of debt issues for Avaya, which as of the end of March had a dizzying $2.9 billion in long-term borrowings on its balance sheet. Like the Cowen prognosticator, investors are right to be highly concerned about the direction in which the company is going.
