BearingPoint $250 million debentures talked at 4.25% to 4.75%; stocks may help volume

By Sheri Kasprzak and Ronda Fears

Atlanta, April 21 - Talk emerged on BearingPoint Inc.'s planned $250 million convertible debenture offering Thursday even as the company suffered credit downgrades and a drop in its stock price. The deal is expected to come with a 4.25% to 4.75% coupon and a 25% to 30% initial conversion premium.

Word came out Wednesday that the company would miss its extended deadline to file its 2004 form 10-K annual report with the Securities and Exchange Commission. A warning about potential shortfalls and negative cash-flow projects also came to the surface about the company Wednesday, triggering violations in its bank covenants and sparking credit downgrades.

Buy-side market sources said the Section 4(2) deal, which is expected to trade under Rule 144A, might have to be reoffered below par to move it.

The company's stock took a hit Thursday, dropping 32%, or $2.49, to close at $5.28.

The BearingPoint 2.5% and 2.75% convertibles trade pretty closely to each other and both plummeted more than 30 points in trade Thursday, traders said. The last trade reported was at 64, compared with a trade Wednesday at 96, one sell-side trader said.

Credit, equity analysts voice worries

At least three downgrades to the stock - by JPMorgan, Merrill Lynch and KeyBank - also followed the news from the company's late Wednesday filing at the SEC as it suggested the situation at BearingPoint was worse than earlier thought when the company requested an extension to file its 2004 financials.

"For some time now we have viewed BearingPoint as a turnaround story requiring patience," JPMorgan analyst Tien-tsin Huang said. "Based on the latest information, we have less visibility into the duration of the turnaround and believe that the rewards no longer outweigh the risks."

Moody's Investors Service cut BearingPoint's existing convertibles to B3, citing the company's announcement that it will be unable to meet the April 29 extended filing requirements for its 2004 10-K amid issues of concern about additional financing to support operations through the end of 2005.

Standard & Poor's cut the converts to B-, noting that BearingPoint cautioned it could still run out of money to run the business. BearingPoint also expects losses for first quarter and 2005 with cash flows in the negative.

BearingPoint signals mixed

Most of the action in BearingPoint's converts was one-way with holders bailing out right and left amid a zero-tolerance attitude toward the risk of securities investigations, traders said. One sell-sider remarked, "Maybe we find out it's just a house of cards." Yet, there were mavericks willing to snatch up the paper on the downdraft.

"The market has no tolerance for risk -- especially for investigations (AIG, CBH etc) - BE just blew up anyone left in the name," said one fund manager. In addition to the new deal pricing with cheaper terms, he added, "The existing [BearingPoint converts] now have YTPs north of 9% alongside a new convert put in front of you.

"I'm wondering if I want to buy these and then see next issue with another put in front of me! [It's an] ordeal in a landscape filled with more worthy ordeals."

In mid-December, BearingPoint sold the 2.5% and 2.75% converts and replaced its then-current credit facility with a new $400 million senior revolving credit facility. Proceeds from both transactions are earmarked to repay its $220 million of senior notes and its $135 million previous revolving credit facility.

Proceeds from the new deal will go to collateralize and/or replace letters of credit under its existing credit facility, which may involve terminating the credit facility, to support letters of credit or surety bonds otherwise in respect to its state and local business.

Despite the news, one fund manager said, the plunge in BearingPoint's converts looked like a buying opportunity. "Don't get mad, get a higher return!" he said. "Buy!"

Higher stocks may lift activity

Elsewhere in the private placement market, sell-siders said Thursday's improved stock prices may help volume as the week wraps up.

"I think it will definitely give things a boost, probably tomorrow, maybe even into Monday," said one market source. "Those were some significant jumps [in stocks]."

The Dow Jones Industrial Average closed up 206.24 to close at 10,218.60; the Nasdaq composite index gained 48.65 to close at 1,962.41 and the S&P 500 ended the day up 22.45 at 1,159.95.

Uroplasty wraps $7.7 million deal

Uroplasty, Inc. said it raised $7.7 million in a private placement of stock.

The company sold 2.2 million shares at $3.50 each to institutional investors.

Uroplasty also issued warrants for 1.1 million shares, exercisable at $4.75 each for five years.

Craig Hallum Capital Group LLC was the placement agent.

"As we plan and execute on marketing strategies for our developing product lines, these funds will enhance our overall capabilities," said the company's president and chief executive officer Sam Humphries in a statement.

"This transaction also supplies us with the capital to meet our financial commitments and commence our work under the exclusive manufacturing and distribution agreement we entered into earlier this week with CystoMedix, Inc. for its percutaneous tibial nerve stimulation technology to treat overactive bladders."

Based in Minneapolis, Uroplasty manufactures medical devices used to treat urinary ailments. The proceeds will be used for general corporate purposes, including sales, marketing and product development.

The company's stock closed unchanged at $4.05 Thursday.

Churchill arranges C$10.6 million deal

Churchill Corp. said it plans to hit the private placement market with a C$10,646,000 offering.

The company plans to sell 5,323,000 shares at C$2 each to Matco Capital Ltd. and Peter Allard.

"If you ask me, the discount seems a little high," said one market source familiar with the offering. "That's about 20%.

"It really shouldn't be a surprise. This is a start-up that has really felt some pretty bad growing pains. They just reported some big losses for 2004, so they probably had to resort to pricing low in order to boost capital."

After the deal was announced Thursday morning, the company's stock lost C$0.08 to close at C$2.40.

Based in Edmonton, Alta., Churchill provides building construction, industrial construction and maintenance services in western Canada. The proceeds will be used for growth and development.

KMG raises $6 million

KMG Chemicals, Inc. completed a private placement of stock for $6 million, the company said Thursday.

The company issued 1.2 million shares at $5 each to institutional investors Tontine Capital Partners, LP and Terrier Partners, LP.

"I am delighted that Tontine and Terrier have increased their positions in the company substantially," said the company's chairman and chief executive officer David Hatcher in a statement. "We see it as a vote of confidence in KMG, our business model and the management team.

"There is no shortage of attractive acquisition opportunities and we fully intend to put this additional capital to work in fairly short order. We have successfully completed four acquisitions over the past 28 months and remain very enthusiastic about KMG's near- and long-term growth prospects."

Based in Houston, KMG produces specialty chemicals.

On Thursday, the company's stock closed down $0.06 at $5.96.

Petrosearch's stock remains up

A day after Petrosearch Energy Corp. announced that it had completed two private placements totaling $12.6 million, the company's stock continued to rise.

Petrosearch's stock gained $0.025 to close at $1.325 Thursday. On Wednesday, when the closings were announced, the company's stock gained $0.13 to close at $1.30.

In two separate offerings, the company sold shares at $1.30 each.

Based in Houston, Petrosearch is an oil and natural gas exploration and development company.

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