Cogent Communications Group Inc. on Thursday disclosed reaching an agreement to raise $41 million in equity and restructure its debt, greatly reducing its future obligations.
The Internet provider avoided a cash crunch by reaching an agreement with Cisco Capital, from whom Cogent had drawn $263 million to build an optical network extending to hundreds of buildings.
Under the new agreement, Cisco Capital will own an 18 percent stake in Cogent, receive $20 million in cash and a $17 million note, said Cogent CEO Dave Schaeffer Friday in an interview. The agreement also relieves Cisco of further obligations to lend money under a $409 million credit facility.
Cogent is left with $27 million in debt with no principal payments due until 2006, Schaeffer says.
Cogent also has raised $41 million in equity through Jerusalem Venture Partners (JVP), Oak Investment Partners, Worldview Technology Partners, Broadview Capital Partners, Boulder Ventures and Nassau Capital.
JVP is the largest investor in Cogent with a 21 percent stake, followed by Cisco Capital, says Schaeffer. Public shareholders own less than one percent of the company.
Cogent said last month in a regulatory filing it had breached covenants under its credit facility with Cisco Systems Capital Corp. Failure to reach an agreement with Cisco Capital could have forced the company to file for bankruptcy, it said in the filing.
“It’s kind of been a wary fight but it’s just about done,” says Schaeffer. “I think we are in a very envious position.”
The agreements announced yesterday are subject to closing conditions and the execution of final documents.
Schaeffer says Cogent is positioned for organic growth and possibly growth through acquisitions. Cogent has completed seven acquisitions, including the purchase of PSINet’s U.S. operations.
For the quarter ending March 31, Cogent posted a $1.9 million loss on $14.2 million in net service revenue. Cogent generates about 70 percent of its revenue through retail operations and 30 percent through service providers, including other ISPs, application service providers and hosting companies, says Schaeffer.
