August 07, 2003
Breathing Room for Cogent
Light Reading has an update on the restructuring at Cogent , which leaves the company's backers with 96.6 percent of the common shares in exchange for $41 million in fresh investment. About $20 million of that cash went to Cisco Systems, the company's largest trade debtor. Cogent had fallen short of revenue targets, placing it in technical default of its $262 million credit line with Cisco. Rather than forcing Cogent into bankruptcy, Cisco opted for some cash and a significant equity stake. The deal dramatically slashed Cogent's debt burden, reducing its debt to Cisco to just $17 million - just 6.4 percent of what it previously owed the equipment maker.
The wisdom of Cogent's business model has been widely debated on industry mailing lists, especially the ISP-Colo list, where it seems you can't mention the company's name without setting off an extended flame war. The company's focus on cost management has allowed it to survive its ambitions and pricing, which have both been disruptive to competing bandwidth providers. But the pain in Cogent's restructuring has been borne by its investors rather than its customers. On balance, that's probably a good thing for data center operators, whose tenants include hosting companies that rely on Cogent's cheap bandwidth to squeeze out profits in an increasingly price-sensitive business. If Cogent had failed, the ripples would have been significant. Instead, pundits can now debate whether a largely debt-free Cogent can make the model work.