Redback Files Its Chapter 11 Plan
biz.yahoo.com
Monday November 3, 9:19 am ET
By Ben Klayman
CHICAGO (Reuters) - Redback Networks Inc. (NasdaqNM:RBAK - News), a maker of network equipment, on Monday said it has filed for Chapter 11 bankruptcy protection, sending its shares tumbling almost 23 percent in premarket trading.
Redback said the filing of the prepackaged reorganization plan is the "concluding step" in the financial restructuring first announced in July.
It said an overwhelming majority of creditors and stockholders who voted accepted the out-of-court restructuring plan, but Redback was unable to obtain the required quorum in the vote.
"As we already have the affirmative votes from a majority of creditors, we expect the prepackaged reorganization to move quickly," Redback President and Chief Executive Kevin DeNuccio told Reuters.
The San Jose, California-based company said it believes it has the approvals required to complete the reorganization and conclude the process very quickly, possibly in as few as 45 to 60 days.
It said more than 99 percent of its creditors and more than 87 percent of its shareholders approved the plan. However, not enough of its 90,000 shareholders voted to avoid bankruptcy court.
Redback said approval of the plan would eliminate all of its existing debt of $467 million and reduce operating expenses by a third, lowering the hurdles to reaching profitability. Due to that, Redback would also avoid the interest payments on that debt of $24 million a year and excess real estate of about $20 million annually.
The company could reach profitability "as soon as the end of 2004, going into the beginning of 2005," and should be cash flow positive within a quarter or two, DeNuccio said in a telephone interview.
Under the plan, Redback would perform a 73-for-1 reverse stock split, reducing its share count to about 2.5 million shares, he said. It would then issue about 47.5 million shares to creditors.
The reverse stock split also would allow the company to avoid being delisted by Nasdaq, DeNuccio said.
Existing shareholders can increase their stake in the reorganized company through warrants to 15 percent from 5 percent over time as Redback's market capitalization rises, he said.
In order to address ongoing capital needs, Redback said it has entered into a commitment letter for secured debt financing of up to $25 million.
Last month, Redback, a smaller rival of Cisco Systems Inc. (NasdaqNM:CSCO - News) and Juniper Networks Inc. (NasdaqNM:JNPR - News), posted a smaller third-quarter net loss and rising sales due to strong demand for its broadband products. Redback's shares fell to 34 cents a share in the heaviest premarket trading on Instinet from its Friday closing price on Nasdaq of 44 cents. |
