BlackBerry (TSX:BB) stock was sent tumbling last week as the tech stock fell to the lowest levels in the last 21 years on the TSX. The fall came after BlackBerry announced a debt refinancing plan to add financial flexibility, but investors were far from impressed.
Now at these low levels, is it a good time to get in for easy returns? Let’s take a look.
A major pivot
BlackBerry continues to work on debt after making the move to completely get rid of its smartphone business, and instead focus solely on its cybersecurity and connected car software in recent years. The company already went through refinancing that brought in US$150 million worth of notes, with a maturity date of February 14 back in November.
The incoming maturity meant that analysts expected a new offering, but just didn’t know what it would be. Last week, it was announced that its convertible debt would mature by 2029, with 3% interest paid annually. It also allows noteholders to convert that debt into shares at a 32.5% premium over the stock’s closing price at the time of the offering.
So, of course, investors in the stock weren’t pleased with the move offering a premium, sending shares downwards. It then reached the lowest levels seen since May 2023. Yet those who specialize in debt were quite happy with the deal, providing breathing room at a time when the new executives are trying to gain traction. So could this be the beginning of great things for investors buying at these super low prices?
The details
The main issue that a lot of investors had with the deal was the 3% interest rate. This was almost double the 1.75% interest rate for its last offering. Add in the conversion premium which dilutes existing shareholders, and it was an all around mess.
Furthermore, investors aren’t keen on the offering strategy used in the United States. This strategy is known as a convertible hedge. It involves buying these convertible notes through a new offering, while at the same time shorting company shares. The idea here is to borrow BlackBerry stock, sell it at a current price, then buy it later when shares are lower (ideally), pocketing the difference.
This is a complicated strategy used by hedge funds, but also puts even more pressure on Blackberry stock. While shares have stabilized since then, analysts don’t believe there are any events coming up that would send shares higher.
What now
So should investors consider BlackBerry stock? I would stay away for now. New Chief Executive Officer John Giamatteo is still trying to find his footing. The company is now splitting into two businesses for both cybersecurity and Internet of Things. It’s unclear when this will happen, and even how. So it’s really just filled with risk at the moment.
Meanwhile, BlackBerry stock continues to burn through cash to try and gain traction in the incredibly competitive cybersecurity market. So if you’re hoping that these bottomed out shares will rebound, unfortunately the reverse could be true.
