BearingPoint Inc., a McLean consulting firm struggling with accounting problems, said it will fight an expected effort by bondholders to demand an early repayment of some of its debt.
In a statement filed with the Securities and Exchange Commission yesterday, BearingPoint claims it is not required to report timely financial statements as a condition of its bond agreement, as asserted in notices of default issued to the company in September by law firms representing some bondholders.
BearingPoint has been plagued by accounting errors and has not reported financial results for 2004 or the first three quarters of 2005. It has not indicated when those filings will be made.
While analysts say it is unlikely the company will be forced to repay the loans immediately, the default claims represent another headache triggered by the company's filing delays. Already the company has been the target of shareholder lawsuits and an SEC investigation related to its accounting problems.
In September, BearingPoint said two law firms sent default notices demanding that it catch up on its financial statements within 60 days or face potential efforts to collect debt totaling $450 million. BearingPoint would not name the law firms.
BearingPoint said yesterday that it "will reject as invalid and wholly without merit any acceleration notice" on the bonds. The company could have received such a notice as early as yesterday, but it had not gotten one as of last night.
Sandeep Dahiya, a finance professor at Georgetown's McDonough School of Business, said most bond agreements require corporations to file regular financial reports to the bondholder's trustee.
BearingPoint officials said the company crafted its bondholder agreements, issued in December 2004 and January2005, without that requirement because the firm's executives knew they would not be able to meet it while they were sorting out accounting problems. Yesterday's filing said BearingPoint's bondholder agreement stipulates that it file reports with the bond trustee 15 days after it files its financial reports with the SEC.
If BearingPoint was found in default of the agreements, it might have to repay the debt immediately, which could cause a cash crunch and force the company to quickly find a new source of funding.
Shares of BearingPoint fell yesterday by 2 percent, or 16 cents, to close at $7.08.
A research note issued yesterday by analysts at UBS Securities LLC said they view "headline risk," as the most damaging effect of the claim.
BearingPoint chief executive Harry L. You described the default notices as a "cynical attempt to extract leverage," from the company.
The firm also said yesterday that it will miss the deadline for its third-quarter results, which should have been filed today.