Avaya Holdings Corp.’s board misled investors about the company’s finances and management as part of a “massive fraud,” according to a lawsuit filed in New York state court by bondholders who claim they lost more than $125 million.
The investors, who sued Feb. 1, said they hold unsecured convertible notes issued by the telecommunications software company in 2018 that have a face value of more than $100 million. The notes are due this year. The plaintiffs include funds associated with Angelo Gordon & Co., Canyon Partners LLC and Mariner Investment Group.
Avaya in May sought to raise funds by refinancing the notes, after releasing “what seemed like rosy financial results” for the second fiscal quarter ending in March 2022, according to the suit.
The company contacted the plaintiffs and other debtholders about issuing a new term loan while continuing to represent that its finances, operations and liquidity “were sound and that prospects were great,” the suit alleges. The investors continued to hold their convertible notes based on those statements and some invested about $80 million of new money, they said.
But shortly after the term loan closed in July, the fraud “began to become apparent almost immediately afterwards,” when the company disclosed it had used proceeds from the loan to repurchase $129 million of notes from other investors, according to the suit.