Cogent restructures, raises more capital

Cogent Communications today announced a restructuring plan that practically wipes clean its debt and infuses the metro fiber carrier with an additional $41 million in capital for expansion.

The deal effectively eliminates $350 million in debt owed its two major creditors, Cisco Systems and Allied Riser, leaving the company only $27 million in arrears, payments of which don’t come due until 2006. Using new funds from its original investors, Cogent bought back $107 million in bonds from Allied Riser, leaving it with only $10 million in notes, on which it must only pay interest until 2007.

With Cisco, Cogent exchanged $263 million in debt for $20 million in cash, a promise for an additional $17 million, the cancellation of a $409 million credit facility and an 18% stake in the carrier, making Cisco Cogent’s second largest investor, right behind Jerusalem Venture Partners. JVP, Oak Investment Partners, Worldview Technology Partners, Broadview Capital Partners, Boulder Ventures and Nassau Capital will put up the $41 million for additional equity stakes in the company.

Cogent CEO Dave Schaeffer said the carrier now has the strongest balance sheet in the ISP sector, an advantage the company managed to gain without declaring bankruptcy.

“In bankruptcy someone gets screwed,” Schaeffer said. “We could have taken that option, but, one, it’s expensive. Two, you damage your employee base and your customer base the moment you file for Chapter 11. And three, most companies that go into bankruptcy never come out. Once you file, you lose control of the process. Ninety percent of the time you don’t emerge.”

Schaeffer said Cogent was largely able to avoid filing for bankruptcy protection because of its close relationship with Cisco. It got the same benefits from bankruptcy without sustaining a blow to its reputation. Nor did it have to contend with 18 months of inactivity while it negotiated its way through the courts, Schaeffer said.

“When you couple that with the assets we have, you can see we’re in a very favorable position,” Schaeffer said. “Cogent is uniquely positioned to be the low cost provider in this market.”