High-Flying Redback Files Ch. 11

San Jose, Calif.-based Redback Networks Inc. filed for Chapter 11 bankruptcy last week after a failed attempt to restructure itself outside of court.

The maker of telecom equipment, once touted as a rival to Cisco Systems, will ask a Delaware court to approve the restructuring plan shareholders did not vote for. In late October, the company held a special meeting, asking shareholders to forgive $467 million in debt, in exchange for 95% of the company’s equity. Shareholders also were asked to go along with a proposed 73-to-1 reverse stock split that would have shored up its stock price and helped the company from being delisted on the Nasdaq.

CEO Kevin DeNuccio says he expects Redback to be granted court backing for its bankruptcy reorganization plan in 45 to 60 days as it seeks shelter from $467 million in debt and the associated $24 million in interest payments a year.

Redback, a maker of Internet routers and switches, launched a $57 million IPO in 1999 (Nasdaq: RBAK). The company saw its stock reach above $190 a share in March 2000 during the Internet boom as numerous dot-coms and Web hosting companies, which depended on the company’s gear, flourished. But as these dot-coms slashed spending and went bust, the fortunes of the networking providers also went south.

Redback reported revenue of $125 million last year, but loss $187 million. At last reported count, the company had less than 600 employees.

Redback, now trading under the symbol RBAKQ, saw its stock trade last week below 30 cents a share, days following the bankruptcy announcement. Other networking companies that have similarly seen their shares trade for a fraction of their onetime high-flying prices include Avici Systems Inc., Copper Mountain Networks Inc., Corvis Corp., CoSine Communications Inc. and Sycamore Networks Inc.

Redback received about $20 million in venture capital from the time it was founded in 1996 until it went IPO three years later. Sequoia Capital provided more than $200,000 in seed money and was in investor in each round, including the late-stage round in July 1998 when Redback received $9 million from seven investors at a post-money valuation of $146 million.

Other investors during the life of Redback were Accel Partners, Comdisco Ventures, Lighthouse Capital Partners, Mayfield, and Oaktree Capital Management.