BearingPoint Inc. disclosed more troubles yesterday, saying that it will take a restructuring charge of as much as $67 million and may not be able to report that it has adequate procedures in place to prevent accounting fraud.
The McLean consulting firm also said it recently received a grand jury subpoena from the U.S. attorney for the Central District of California related to federal contracts dating to 1998, and that it will issue new debt that could reduce the value of shareholders' interest in the company.
Investors yesterday drove the company's share price down 73 cents to $7.75.
The disclosures, in a filing with the Securities and Exchange Commission, followed the abrupt loss of two top executives in November. The company also is trying to deal with the future of several divisions whose performance has been disappointing.
The company said it plans to use the proceeds of a $350 million convertible debt offering to replace an existing credit facility and repay existing debt.
Soon after BearingPoint announced its offering, the company's credit was downgraded by rating agencies. Analysts said the convertible offering, which allows buyers to convert their notes into stock, could dilute BearingPoint's earnings per share and the ownership interest of current shareholders.
The "dilutive event raises concerns that the business maybe more troubled than previously thought," said analysts from Wachovia Securities, which downgraded the company's stock to "underperform" yesterday.
The offering is intended to give BearingPoint more liquidity, said Paul Hsi, an analyst with Moody's Investors Service. But, he added, it will also increase its overall debt.
"We've been tracking it very closely and have been sort of disappointed in terms of their ability to hit our expectations," Hsi said of the company.
The offering would reduce the chances that BearingPoint might be declared in default of existing credit agreements. A default would be triggered if the company failed to file an audited financial statement, which might occur if it is unable to meet financial accounting standards under the Sarbanes-Oxley Act. The act requires companies to certify that they have adequate accounting controls in place to prevent fraud. BearingPoint said it found a "material weakness" in its accounting procedures as recently as Nov. 19, and will likely find at least one more by the end of the year.