Redback files for bankruptcy

Network gear maker Redback Networks filed on Monday a Chapter 11 bankruptcy plan that would erase $467 million in debt.

The plan calls for the company to use a reverse stock split of 73-for-1 to make major creditors Creedon Capital Management, Citadel Investment Group and Ramius Capital Group into owners of a collective 47 million Redback shares.

Chief Executive Kevin DeNuccio said Redback could report its first-ever profitable quarter next year, if the plan is approved. DeNuccio said the financial restructuring eliminates annual payments of $20 million for excess office space and $24 million in interest payments to credit holders. "That unproductive spending was our biggest?throttle on revenue growth," DeNuccio said.

Profit has eluded Redback throughout its nearly eight-year history of selling telephone network equipment to service providers, but it now expects to be in the black at the end of 2004 or early 2005, DeNuccio said. Redback's equipment is designed to serve as a network's traffic cop and ensure that telephone calls, Web sessions and other bits of data reach the appropriate places.

Despite its financial woes, Redback sells more of this type of equipment than do competitors Juniper Networks and Cisco Systems.

Redback has cleared a vital bankruptcy hurdle--the plan has already been approved by Redback's creditors--just as its next-generation product lines are hitting the market.

"We can now compete on the basis of our technology," DeNuccio said. "Our competitors have only really pointed to our balance sheet as a weakness."

Cisco and Juniper representatives did not return calls Monday for comment.