BearingPoint Inc. raised $200 million yesterday by selling debt convertible into its stock, easing a potential cash crunch at the McLean consulting firm.
The company reduced the amount of the offering from the $250 million it originally intended to raise, but BearingPoint executives said the funds will be enough to run the company in the near term.
BearingPoint raised $200 million by selling debt. Officials say it is enough to run the company in the near term.
"With our financial problems that we have disclosed, we thought it was important to demonstrate to our clients that our balance sheet was pristine," said Chairman Roderick C. McGeary.
The debt pays a 5 percent interest rate and can be converted into BearingPoint stock at $6.60. The debt matures in 2025. BearingPoint will use the proceeds to replace an existing credit facility that was about to expire. BearingPoint told investors in a filing with the Securities and Exchange Commission that its cash on hand was about $200 million at the end of March, not enough to meet its "expected or possible near-term cash needs."
The company's stock rebounded slightly yesterday, rising 50 cents, or 9.5 percent, to $5.78. It had fallen more than 30 percent the day before, after the company disclosed a new round of accounting problems.
The company reported in an SEC filing that it does not know when it will be able to produce audited financial results for 2004 and cautioned that results going back to 2002 may be inaccurate. Lapses in its internal controls have triggered a stream of bad news for BearingPoint, including an "informal" SEC investigation into its accounting procedures.
Joseph Parkhill, a research associate with Fulcrum Global Partners LLC, said the offering is a positive step for BearingPoint because it solves the firm's immediate cash needs. But the company and its new chief executive, Harry L. You, a former Oracle Corp. executive who took the top spot at BearingPoint last month, still face significant challenges, Parkhill said.
"They've had operations issues in the last two or three years and haven't been able to fix them. The company lacked a lot of direction, I think it lost a lot to competitors," Parkhill said. "They've had a lot of problems, but Harry You is a great leader. . . . Harry You gives the employees a lot of confidence."
McGeary said that since BearingPoint has raised more cash, solving its financial accounting problems will be the firm's biggest priority.
"I think as we disclosed, our client base and our revenue are not the problems with the business," he said.
"The problems with the business are around financial reporting, not around the operational soundness of the business."