BlackBerry has announced it is to raise approximately $605 million by selling convertible debentures to a number of shareholders, including major shareholder Fairfax Financial Holdings. The new debt instrument will have a coupon of 3.75% and will be due in November 2020. In the same announcement, BlackBerry explained it is also planning on redeeming $1.25 billion of debentures with a coupon of 6% on the 2 September. Should all of this debt be converted into stock it would represent a little over 11.5% of BlackBerry's current outstanding shares. Fairfax is a business that invests in "recovery situations," that is a company that has suffered as has the stock price but now looks like it could recover. Recoveries can take many forms from a turnaround in the underlying business, cost cutting measures, a change in management or sometimes the potential for a takeover by another business. Fairfax currently holds a little under 9% of the company's shares, making it the second largest shareholder. For BlackBerry's debt restructure, they are removing higher costing debt (where they must pay stockholders 6% of the premium every year) for less of a lower paying debt, which will significantly reduce their annual interest costs.
In the case of BlackBerry, before the Apple iPhone they were one of the world's market leading smartphone businesses along with Nokia's Symbian-powered handsets. However, when Apple introduced the iPhone, BlackBerry did not adapt its portfolio or software platform quickly enough. The Canadian smartphone manufacturer continued building smartphones powered by its legacy JAVA-based operating system. It bought QNX, a software platform popular in some industries such as healthcare, but the new smartphone platform based on QNX, BlackBerry 10, was delayed by several years. BlackBerry 10 has been available in devices for some time now but the new operating system has failed to make much of an impact. We have seen BlackBerry start to build devices based around Google's Android platform although BlackBerry do harden the platform with a number of additional security features. The first Android-based device, the PRIV, was released towards the end of 2015 and the second model, the DTEK50, is in the process of being released over the world. In line with this we have seen handsets based on the BlackBerry 10 stop being sold - in July, BlackBerry announced it would stop producing the Classic.
BlackBerry's smartphone manufacturing division has been in doubt for some time. The company has made no secret that it is concentrating on specialist security software and has worked with a number of other businesses across the world to improve their security systems. BlackBerry's Chief Executive, John Chen, has stated that the company needs to make the smartphone division profitable and has given the business a target of September to make the turn around after losing millions over the last few years. The DTEK50, as a much cheaper device, could help the business sell more units but BlackBerry have a significant headwind.