BlackBerry(NYSE: BB), a tech and telecom stock with quite an up-and-down history, was trading in one of its valleys over the past few days. According to data compiled by S&P Global Market Intelligence, the Canadian company's share price had eroded by 13% week to date as of Friday early morning. Much of the decline occurred on Wednesday, when the company announced a new financing measure.
$175 million worth of convertible senior notes sold
BlackBerry revealed that day that it is floating $175 million worth of convertible senior notes, a type of debt security that is transferrable into equity under certain conditions. The issue was upsized from the previously planned $160 million.
The notes are being sold in a private placement to unidentified "persons reasonably believed to be qualified institutional buyers," according to applicable securities law, the company wrote in a press release.
The coupon on the notes is 3% per annum, paid semiannually, and they mature in 2029 if not converted. The initial conversion rate is just under 258 common shares of the company's stock per $1,000 principal amount of the notes. This equates to a price of roughly $3.88 per share, for a conversion premium exceeding 32%.
BlackBerry said that the initial purchasers of the notes had been granted an option to buy up to an additional $25 million worth of the securities. It added that the issue is expected to close this coming Monday, Jan. 29.
The Canadian company, once famous for its namesake pre-smartphone handheld communication devices, said it would utilize the proceeds from the issue mainly to retire debt. The remainder is to be devoted to unspecified "general corporate purposes."
A dilution solution?
BlackBerry's market cap currently stands at a shade under $1.75 billion. So if those buyers fully exercise their option and all notes end up being converted into stock, the issue could be quite dilutive. No investor likes to have the specter of dilution hanging over one of their companies, hence the market's negative reaction to the news.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry. The Motley Fool has a disclosure policy.
