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Redback Networks is back

The networking equipment company emerges from bankruptcy protection and completes a financial restructuring, eliminating $467 million worth of debt.

Networking equipment company Redback Networks emerged from bankruptcy protection and completed a financial restructuring that has eliminated $467 million of debt.

"We are no longer constrained by our financial structure," Kevin DeNuccio, chief executive officer of the company, said Monday. "We have a strong business model, and we're competing in the fastest-growing segment in telecom right now."

The restructuring plan, which was approved by the U.S. Bankruptcy Court for the District of Delaware last month, includes a 73-for-1 stock split that left previous common shareholders with 5 percent of the newly traded 50 million shares and creditors with the rest. Also as part of the restructuring, the company reduced its operational expenses by $44 million. Roughly $24 million of this was due to the elimination of interest payments on the $467 million of debt and excess real-estate holdings.

The company also received $30 million in cash from Technology Crossover Ventures, a private equity firm, in exchange for 651,749 shares of series B convertible preferred shares that can be converted into common stock at a 1-for-10 ratio. The firm received warrants for more than 1.6 million shares of common stock at an exercise price of $5 a share.

Redback had filed its prepackaged bankruptcy plan in November, following shareholder approval. At that time, DeNuccio said Redback could reach profitability as soon as the end of 2004 or early in 2005 and should be cash-flow positive within a quarter or two.

Common shareholders were hit the hardest by the restructuring. Despite the heavy dilution, DeNuccio said shareholders could regain much of their investment over time. According to the restructuring, previous Redback common shareholders can increase their stake in the reorganized company through warrants to 15 percent over time, as the company's market capitalization rises.

Aside from eliminating its debt, Redback looks much the same today as it did before it filed for bankruptcy protection. The company continues to go after the broadband carrier market with its Subscriber Management System and SmartEdge products. Redback's gear is specially designed to help DSL (digital subscriber line) service providers manage thousands of connections. Specifically, the software that's used in its devices ensures that telephone calls, Web sessions and other bits of data get to the appropriate places.

The company has done well in this segment of the market, outpacing sales by competitors Juniper Networks and Cisco Systems, according to DeNuccio. Still, Redback has struggled to reach profitability throughout its nearly eight-year history of selling telephone network equipment to service providers. So what's different now?

DeNuccio said the market has changed drastically over the past year and that Redback is poised for success, with a clean balance sheet and next-generation technology already shipping to customers.

"We had a broken balance sheet," he said. "But we never had a broken business model."

DeNuccio said DSL subscriber management is expected to be one of the fastest-growing markets in telecommunications. Up to this point, Redback and other suppliers have seen much of their success in Asia and Europe. Now, as local telephone companies in the United States start launching more DSL services, DeNuccio said he expects to see a surge in the North American market as well.

Redback's shares closed Monday at $7.80 a share on the Nasdaq. The stock closed Friday, before the restructuring, and reverse-split at 22 cents.