April 1’s news from Sungard Availability Services (AS) was, unfortunately, not a tasteless April Fool’s Day joke for staff and customers.
The data infrastructure and disaster recovery company’s announcement that it was filing for bankruptcy rocked the industry channel, despite claims that a debt forgiveness plan backed by most creditors would see it emerge from the wreckage a stronger, more competitive business.
Sungard AS, which helped keep Wall Street running through September 11, says its customers include 70 percent of Fortune 100 companies. It boasts 90 hardened IT facilities connected by a redundant, dedicated network backbone, along with 18 mobile facilities staged in strategic locations.
But saddled with hefty debt from its private equity backers and with margins falling on competition from cloud rivals — amid a shift away from on-premises/co-location backup — the company sought relief from the courts.
(The plans provide for the payment of all trade, employee, and other non-funded debt claims in full, Sungard AS emphasised [pdf], adding that it has liquidity to meet its financial obligations to vendors and employees).
Sungard AS Bankruptcy: What Now?
Investor voting was set to begin today on the Wayne-based company’s Chapter 11 plans, five days after it said it had won backing from most creditors for plans to write-off $800 million of the company’s $1.25 billion in debt as part of a pre-packaged Chapter 11 bankruptcy filing in New York. (Voting ends April 26).
But can it survive?
CEO Andrew Stern sounded a bullish note in his comments: “A diverse group of lenders came together very quickly, reaching an agreement that results in an appropriate capital structure that enables us to continue focusing on operating and growing our business” he said in a statement this week.
“Our creditors recognize the value in what we’ve built, and are investing new capital into the business. Sungard AS will emerge from this process as a much stronger company, continuing to service existing and new customers well into the future.”
Peter Groucutt, Managing Director of Databarracks, told Computer Business Review in emailed comments: “Sungard AS is a cornerstone of the UK’s Resilience capability and we echo Sungard chief executive Andrew Stern’s comments.”
He added: “Cloud has changed disaster recovery significantly in multiple ways. Firstly, the hyperscale cloud providers like AWS and Microsoft Azure have entered the market and feature both as competitors and partners.”
“Secondly, ‘cloud’ disaster recovery has changed the way disaster recovery services are now delivered adding flexibility and remote working. That shift is difficult with such large debts, originally taken on to finance traditional disaster recovery services with much higher margins. The restructuring will aid that transition.”
Others are less certain of the outlook: Eric Snyder, head of the bankruptcy department at New York law firm Wilk Auslander told the Inquirer that “even with this 70% reduction in debt, it is unclear how Sungard will generate profit in this sector after it emerges from bankruptcy.”
Sungard Bankruptcy: The Cloud Bites Again
Under the Chapter 11 proposal, Sungard’s private-equity buyout firms that have controlled the company for 14 years will give up control to the hedge funds that have financed its mounting debts.
They will replace the buyout investors including Bain Capital LLC, KKR & Co, Silver Lake, and TPG Capital LP that bought the formerly publicly traded company for $11.4 billion, 70 percent of it borrowed, in 2005.
Hedge funds are not typically long term investors and on jobs board “The Layoff” speculation was mounting about the future this week.
One commentator and apparent former employee wrote: “These id–ts were told over and over and over (since 2012 at least!) that cloud services were the future and Colo DR was dead.They were given detailed marketing plans, system requirements, and budgeting.”
“They hemmed and hawed and diddled and would change direction on a whim, without any product or engineering input, to chase the latest vendor shiny object.”
“There is no customer with a grain of sense that should be willing to put their corporate data into a company that “hadn’t changed in 20 years”. [Ed: A claim made, oddly, by CEO Stern] Especially one that is willing to screw creditors to the tune of almost a billion dollars.”
One customer that has recently done business with Sungard is the British government. Civil servants will be watching the outcome closely.
Also among major UK customers likely watching closely: global airline services and logistics supplier John Menzies, which in 2016 agreed to transfer all of its IT infrastructure into Sungard’s global data centre and cloud infrastructure.
The news is the second major tech sector bankruptcy filing in a weeks, with ad server company Sizmek last Friday filing for Chapter 11 protection, with debts to over 5,000 creditors at risk without a restructuring after investors cut off access to capital.