Mackenzie Financial Corp., Markel Corp. (MKL) and Canso Investment Counsel Ltd. also bought the debentures -- a deal that was orchestrated by Fairfax Financial Holdings Ltd. (FFH), BlackBerry’s largest investor. Canso is investing $300 million, Fairfax is putting in $250 million, and Mackenzie is contributing $200 million, according to a filing today. Markel and Qatar Holding are each adding $100 million, while Brookfield contributed $50 million.
Fairfax, an insurance and investment firm, set up the bond sale after failing to secure the funds for a tentative $4.7 billion offer to buy the smartphone maker and take it private. Waterloo, Ontario-based BlackBerry has been losing market share to Apple Inc. and Samsung Electronics Co. (005930), leading to a plunge in sales and mounting losses.
Despite BlackBerry’s challenges, the bonds are a safe investment, said Sameet Kanade, an analyst at Jacob Securities Inc. in Toronto. The debtholders will get first crack at BlackBerry’s assets in a bankruptcy. If, on the other hand, the shares rise, the debentures can be converted into stock at $10 a share, he said.
“On the downside, you’re protected,” Kanade said. “And on the upside, you could make a killing.”
The move to borrow the funds underscores BlackBerry’s deteriorating cash situation. Its cash and short-term investments fell by almost $500 million last quarter to $2.3 billion, according to data compiled by Bloomberg. At that rate, the money will be gone by the end of next year.
BlackBerry is also seeking a tax refund of as much as $1 billion before the end of this year, according to two people familiar with the situation. The company is negotiating for a larger refund than the $500 million previously disclosed and is asking the Canadian government to speed up the process, said the people, who asked not to be identified because the discussions are private.
The debenture transaction is expected to be completed within two weeks, according to the filing. If it hasn’t closed by Nov. 27, any of the parties can terminate the agreement. Fairfax has an option to arrange for $250 million more of the debentures within 30 days of the transaction closing.
BlackBerry must pay a termination fee to the bond investors if it enters into an agreement to sell the company. The fee ranges from $135 million to $250 million depending on the circumstances.
Cerberus Capital Management LP, the New York-based firm that specializes in investing in distressed assets, had been discussing a joint offer with BlackBerry’s co-founders and chipmaker Qualcomm Inc. (QCOM) before BlackBerry negotiated the bond deal, two people with knowledge of the matter said last week.
BlackBerry’s new creditors are a mix of U.S., Canadian and Qatari investors. Canso is a closely held money manager based in Richmond Hill, Ontario, that was founded by John Carswell. Brookfield, Canada’s biggest manager of alternative assets, oversees office buildings, ports and railways on behalf of third parties.
Mackenzie, a Toronto-based investment manager, is the eighth-largest investor in Fairfax. It held about 294,000 shares as of July 31, along with some BlackBerry shares, according to Bloomberg data. Qatar Holding, meanwhile, is a unit of the emirate’s sovereign wealth fund. Markel is a holding company based in Glen Allen, Virginia, that offers insurance.
Fairfax and its partners are restricted from selling their debentures for at least a year after purchasing them, according to the filing.
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