BearingPoint Restructures Under Bankruptcy Filing

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Government system integrator BearingPoint this week said it is restructuring and filing for Chapter 11 bankruptcy in the wake of the financial burden it has carried since it rose from the ashes of KPMG.

BearingPoint arranged a deal with its creditors under which approximately $1 billion in debt is reduced to about $300 million in debt plus new stock, a company spokesperson said.

As part of the filing for Chapter 11, the agreement also exchanges unsecured debt for different classes of common stock, and cancels all existing equity in the company.

BearingPoint is ranked number 27 on the 2008 VARBusiness 500 ranking of the top 500 business and technology integrators.

The financial restructuring stems from BearingPoint's spin-off from the old KPMG organization in 1999, the spokesperson said.

BearingPoint borrowed heavily to purchase its international subsidiaries, which put a heavy debt burden on the company, the spokesperson said. The spokesperson said that there was some impact to the company from the current economic crisis, but that is not a primary reason for the restructuring.

BearingPoint filed for the restructuring at this time because one of BearingPoint's bondholders had an option to call in a $200 million bond that was coming due shortly, which would have taken a huge amount of the company's available cash, the spokesperson said.

The company also faced the possibility of being delisted from the New York Stock Exchange, which could also make other bonds due immediately, the spokesperson said.

Other than the debt burden, BearingPoint is doing well, with rising operating income and margins and record-breaking revenue in its last fiscal quarter for its public services business, the spokesperson said.

Despite the financial restructuring, BearingPoint is focusing on business as usual. The restructuring has not resulted in layoffs, and the company is working with customers and subcontractors as normal, the spokesperson said.

In an open letter to customers, Ed Harbach, CEO of BearingPoint, wrote that BearingPoint does not expect the restructuring to impact daily operations and engagements, and that the restructuring process does not affect operations outside the U.S.

"First and foremost, it is critical for you to understand that our work on your engagements will not be affected and our day-to-day operations will continue as normal without interruption throughout this process. Further, our international operations will not be affected. Rest assured that our commitment to serving you and continuing to provide you with world-class consulting solutions is unwavering," Harbach wrote.

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