Avaya credit rating dropped to junk status in wake of Nortel buy

Avaya is now the undisputedly largest unified communications vendor, but its purchase of Nortel’s enterprise business has dropped the company’s investment rating to junk status, according to Moody’s Investors Service.

The ranking for the privately held company was dropped to B3 – six steps below the lowest rating that is considered investor grade, according to the Wall Street Journal. The rating is an assessment of how credit worthy entities are.

A B3 ranking is marked by subject “high credit risk”, and having “generally poor credit quality,” and is among the rankings commonly referred to as junk.

The Nortel deal has lots of potential upside for Avaya, and that includes securing the top ranking among unified communications vendors, but Moody’s says the path to integrating Nortel and solidifying that lead is perilous, the Journal reports. The borrowing as Avaya did to finance the $900 million purchase “will leave little cushion to support unforeseen operating or integration challenges and minimal ability to make material debt repayment,” according to Moody’s.

Avaya has promised a roadmap for integrating Nortel products into its product line for Jan. 19, and says it was working from the time it won the bid for the bankrupt Nortel division until last week when the acquisition closed to organize the two entities into a single management architecture.

Avaya is privately owned by Silver Lake Partners and TPG Partners.