Private equity firms TPG and Silver Lake are facing potential losses of more than $2 billion on a 2007 buyout deal worth $8.2 billion in which they acquired U.S. telecommunications maker Avaya. Burdened by large debt and pension obligations, Avaya is now weighing the possibility of filing for chapter 11 bankruptcy, according to the Wall Street Journal.

Prior to the 2007 buyout deal, Avaya was bringing in stable revenue offering telephone system installation and management services for corporate clients. The stability of the business and its steady cash flows was what attracted TPG and Silver Lake, whose plans were to trim costs and expand the firm’s call-center software unit, according to people close to the matter, as reported by the Journal.

Avaya's Road to Ruin

The fallout from the global financial crisis that soon followed would throw a wrench into those plans as Avaya saw its revenue drop by roughly 20% during its 2009 fiscal year (FY). Before the deal, Avaya had estimated that it would earn $418 million during that year. Instead, the company lost a total of $847 million. (To read more, see: The Impact of Recession on Businesses.)

Even as the economy began to pick up from the bottoms of the crisis, fierce competition from other technology firms like Cisco Systems Inc. (CSCO) and Microsoft Corp (MSFT), cut into the firm’s market share and potential earnings. In the wake of the increased competition, Avaya has focused less attention on being a hardware provider and transitioned the bulk of its efforts to offering software and services, which currently accounts for more than 75% of its revenue.

Yet, the company has not posted an annual profit since it was bought out and its financial obligations have only become increasingly burdensome. On top of a $6 billion debt load, Avaya has U.S. pension plan obligations of $3.15 billion, which are nearly $1 billion more than the pensions' $2.21 billion worth of assets, according to the Journal.

Private Equity: Risky Business

In contemplating the chapter 11 filing, Avaya hopes the move would allow it to pare the debt load and hand-off the pension to the nation’s pension insurer, the Pension Benefit Guaranty Corp., a not uncommon move made by firms in similar positions. The bankruptcy filing, of course, would see both TPG and Silver Lake realize losses of more than $2 billion.

Other major private equity deals that have gone sour over the decade include the KKR & Co. and TPG acquisition of Texas utility TXU Corp., for $32 billion in 2007, and the $8.2 billion buyout of Tribune Co., the publisher of the Chicago Tribune and Los Angeles Times, by real estate mogul Sam Zell around the same time. In 2008, Tribune entered into chapter 11, and in 2014, TXU filed for bankruptcy protection, according to the Journal.

Such examples illustrate that, while private equity can bring astronomical rewards, as some of America’s richest bosses are heads of private equity firms, the business carries significant risks as well. (To read more, see: Private Equity: America’s Richest Bosses.