Debentures are a type of long-term debt instrument used by companies and governments to borrow money. They are essentially a form of loan or bond, issued with a fixed interest rate. Debentures are distinct in that they do not secure physical assets or collateral, relying instead on the creditworthiness and reputation of the issuer.
There are two main types of debentures:
- Convertible Debentures: These can be converted into equity shares of the issuing company after a predetermined period of time.
- Non-Convertible Debentures (NCDs): These cannot be converted into shares and are repaid at the end of a specified term.
Debentures are an attractive option for investors seeking fixed-income investments, and for companies looking to raise capital without diluting ownership.
BearingPoint is offering $225 million aggregate principal amount of 2.50% Series A Convertible Subordinated Debentures and $175 million aggregate principal amount of 2.75% Series B Convertible Subordinated Debentures to qualified institutional buyers in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended. In addition, the Company has granted the initial purchasers a 30-day option to purchase up to an additional $25 million principal amount of each of the Series A Debentures and the Series B Debentures. The offering is expected to close on December 22, 2004.
Under certain circumstances, the debentures will be convertible into the Company's common stock at a conversion rate of 95.2408 shares per $1,000 principal amount of the debentures, subject to adjustment, equal to an initial conversion price of approximately $10.50 per share. Upon conversion of any debenture, the Company has the right to deliver cash or a combination of cash or shares of common stock. The closing sale price for the Company's common stock on December 16, 2004, was $7.75 per share.
Interest will accrue on the Series A Debentures at a rate of 2.50% per annum. Interest will accrue on the Series B Debentures at a rate of 2.75% per annum. The Series A Debentures will be redeemable at the Company's option on or after December 23, 2011. The Series B Debentures will be redeemable at the Company's option on or after December 23, 2014. The holders of the Series A Debentures will have the right to require the Company to repurchase all or some of their debentures on December 15, 2011, 2014 and 2019 and upon the occurrence of certain events, and holders of the Series B Debentures will have the right to require the Company to repurchase all or some of their debentures on December 15, 2014 and 2019 and upon the occurrence of certain events. The Series A Debentures and the Series B Debentures will mature on December 15, 2024, and will be unsecured.
The Company intends to use the net proceeds from the offering to repay the Company's existing $220 million aggregate principal amount of Senior Notes and to repay approximately $135 million outstanding under the existing revolving credit facility.
BearingPoint is a business consulting, systems integration, and managed services firm.