| | S&P Assigns Redback B- Corp Credit Rtg
Following is a press release from Standard & Poor's:
NEW YORK (Standard & Poor's CreditWire) Nov. 15, 2000-Standard & Poor's
today assigned a single-'B'-minus corporate credit rating to Redback
Networks Inc. At the same time, it assigned a triple-'C' rating to Redback's
$500 million 5% convertible subordinated notes due 2007.
The outlook is stable.
Redback Networks Inc.'s rating reflects the company's very narrow business
base in an evolving market and the challenges of potential acquisitions,
offset by its currently ample financial flexibility.
Sunnyvale Calif.-based Redback offers a Subscriber Management System (SMS),
which automates the provisioning and management of large numbers of digital
subscriber access lines at the point where these lines enter a carrier's
network. The SMS converts numerous digital subscriber lines of various types
to the Internet protocol (IP) used in the backbone of digital networks and
facilitates carriers' billing and maintenance. These tasks are performed
more efficiently by a special-purpose device such as the SMS, which reduces
overhead burdens that would otherwise be placed on the carrier's general
purpose routers.
Redback's more than 50% market share in 1999 declined to about 36% for the
first half of 2000, as key competitors Cisco Systems Inc. and Nortel
Networks Corp. introduced competitive products, while other competitors are
expected to expand their offerings. Selling cycles can be protracted at this
early stage in the market. The need to support potentially extensive trial
installations in the U.S. and overseas can quickly consume substantial staff
resources of a small company, with only limited assurance of subsequent
volume orders.
The company purchased Siara Systems Inc. for $4.5 billion in stock in March
2000. Siara's SmartEdge development-stage optical access system was
complementary to Redback's own products and is designed to improve the
efficiency of provisioning optical access facilities. Redback acquired
Abatis Systems in November 2000 for $636 million in stock. Further
acquisitions are expected from time to time.
Redback's revenues for the four quarters ended September 2000 totaled $190
million, while substantial development and sales expenses have permitted
only modest operating profitability. The company's $500 million in debt is
about 20 times cumulative EBITDA for the four quarters ended Sept. 30, 2000.
Due to rapid growth, the company generates moderately negative free cash
flows. Cash balances totaled $474 million at Sept. 30, 2000, and are
expected to be adequate for operational requirements over the intermediate
term.
OUTLOOK: STABLE
Financial flexibility should be adequate to support Redback Networks'
efforts to develop and deploy its products over the intermediate term,
Standard & Poor's said.
(END) DOW JONES NEWS 11-15-00
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