What's this about extending the deadline on BlackBerry convertibles?

Yesterday BlackBerry put out a little press release about its convertible debenture offering. We posted a quick blurb about it, however in reading through the comments, I can tell many of you want a simple explanation of what’s going on.

No prob --  that’s why I’m here.  Financial stuff can get a bit boring sometimes, and the people who write these releases sound like lawyers most of the time. They often have no clue how to just write in normal people speak.

Here’s the deal.  Yesterday’s press release title says, “BlackBerry Extends Purchase Option Deadline for Additional Convertible Debentures”.  Breaking this down, you need to understand only two things.  First I’ll remind you what the convertible debenture deal was all about.  Second, I’ll explain (in simple terms) what part of the offer is being extended.

Remember when Fairfax put together the offer to take BlackBerry Private?  They ended up pulling the plug on that offer.  Instead, they arranged a $1 billion financing for the company. 

Fairfax and other investors bought $1 billion worth of convertible debt. This means they wrote a check to BlackBerry and they get paid 6% interest on the loan. Fairfax and crew can either be repaid in cash or they can choose to be repaid in stock. If the stock climbs above $10 per share they are better off taking payment in stock. That’s what we are all hoping for.

So far nothing here is new.  If you’ve followed the details around this financing, you remember all this.  

But most money-getting transactions are structured to include something called an over-allotment option.  We see this with IPOs all the time. Brokers who handle public offerings of stock are usually allowed to sell 15% more shares than the base plan calls for. We saw this with Twitter’s IPO recently.  

In BlackBerry’s case, when they agreed to a $1 billion convertible financing they granted Fairfax an option to purchase up to another $250 million of convertible debt up until 30 days past the closing date of the initial transaction.  Since the deal closed on November 13th the over-allotment option would have expired yesterday.

So BlackBerry is extending the deadline for another month. Obviously Fairfax has not exercised its right to buy (or find buyers for) the additional $250 million in convertible debt. Since we’ll be seeing fresh financials in the next week, this will give convertible debt investors more recent data on which to make a decision.  

The SEC filing makes it clear that Fairfax is in control of this option, and they can use it to buy more convertibles for themselves, or allow new investors into the picture.

My take on this is simple. Over a decade of experience in the investment banking industry has pounded one simple concept into my head.  If you are offered money always say yes.  There are obvious exceptions for companies who have far more cash than they could ever spend.  But I’ve seen too many financings (that seemed unnecessary at the time) save a company from death later on once things turned sour.

If BlackBerry has a chance to grab another $250 million they should absolutely do it.  No question.