Capital Markets

BearingPoint Denies Default on Bonds

Planning to appeal, the consultancy worries how a recent court ruling will affect its standing with bondholders.
Stephen TaubSeptember 27, 2006

The New York State Supreme Court has ruled that BearingPoint is in default of certain debentures after failing to file its financial reports on time.

The consulting company said it plans to appeal, citing “serious errors” in the ruling made on September 19. The amount of damages to the holders of the Series B Debentures will be determined during a future trial, according to the company’s filing with the Securities and Exchange Commission revealing this information.

BearingPoint acknowledged that the ruling allows holders of the Series A Debentures and the April 2005 Senior Debentures to seek to serve the company with a notice of default or acceleration alleging the company’s breach of the reporting covenants.

The company also warned that there could be “material negative consequences” on BearingPoint’s other outstanding debt obligations, indemnity agreements relating to surety bonds and certain customer contracts, as well as its auditor’s opinion, which is expected to be delivered in connection with the company’s 2005 annual report.

“If the company cannot obtain surety bonds on acceptable terms, it may be unable to obtain new client engagements that require them,” BearingPoint wrote in its filing. “In turn, the company’s current and anticipated revenue, particularly from its public services business unit, could be materially and adversely affected, which would materially and adversely affect the company’s financial condition and results of operations.”

During a conference call with investors earlier this week, Harry You, BearingPoint’s chief executive, said the recent news could have a ripple effect. “These bonds have traded at a premium for nearly the entire duration of the case,” he said on Monday, according to The Washington Post. “Paying off one set of bondholders may only expose us to claims from other bondholders where no economic loss has occurred.”

He also warned that the company’s filing will not be current until at least the spring of 2007, according to the newspaper. Apparently worried equity investors knocked down the price of BearingPoint’s shares by nearly 9 percent in early trading on Tuesday.