BearingPoint Files for Chapter 11 Bankruptcy Today

Today, BearingPoint, Inc. announced “it has achieved a financial restructuring agreement with its senior secured lenders that will significantly reduce its debt and improve its capital structure.”

In other words, the firm is bankrupt.

And it has file for voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York only for the US operations though

BearingPoint says this filing was made with a “pre-arranged” restructuring plan with senior secured lenders, and will likely move this as fast as possible. Clearly, the firm examined all its available options and chose to pursue this alternative, indicating that all and any efforts to find a buyer were not fruitful.

In essence, the firm and its senior secured lenders agree to the proposed pre-arranged plan of reorganization with these key constituents:

(1) replace the $500 million senior secured credit facility with a new secured, senior credit facility: $272 million term loan plus accrued interest. $130 million synthetic letter of credit facility and issuance of new preferred stock
(2) unsecured debt will be exchanged for different classes of common stock
(3) all existing equity in the Company will be cancelled for no consideration.

How does this impact BearingPoint?

First, most of the debt is gone. And so does the burden of paying principal and interest, and buying back debentures some of which were coming due in just weeks. And the obligation to purchase all debt when the company’s stock is delisted from the NYSE is gone too.

Day-to-day operations are expected to continue as “normal”, as much as normal is under these circumstances, and clients evaluate their projects and contracts with a bankrupt vendor.

There is going to be an immediate impact on BearingPoint’s employees. Not that this was unexpected, since everyone could see the stock price dip each day to new lows. But the firm’s employees may now take a deeper look at their situation and evaluate their options.

We have been saying all along that some kind of end-game needs to happen at this time, either a buyout or a sale, with bankruptcy being the silent but necessary point of last resort.

Andersen folded when the Department of Justice made a criminal case against the firm (eventually overturned) but it was a viable financial entity at that point.

The fall of BearingPoint was driven by mismanagement both of the financials and of the firm. A company with over $3 billion in sales should not have a market capitalization of less than $2 million, it doesn’t make sense.

We mourn the loss of a Big Four firm, and trust that BearingPoint can find a viable avenue to return to strong operating performance.