BlackBerry says Fairfax to buy $250 million more debentures

[giofranchi]

To be fair to Prem, I have noticed his inconsistencies more than anyone else, because I have followed FFh so closely for so long. 

 

Al,

of course he has his inconsistencies! Yet, he is the one who created an $8 billion company from scratch. Not me, neither you, nor anyone on the board (at least that I know of!).

Therefore, the real question is: has he lost his mind? From a first class entrepreneur, has he suddenly become third tier?

 

Gio

[Uccmal]

To be fair to Prem, I have noticed his inconsistencies more than anyone else, because I have followed FFh so closely for so long. 

 

Al,

of course he has his inconsistencies! Yet, he is the one who created an $8 billion company from scratch. Not me, neither you, nor anyone on the board (at least that I know of!).

Therefore, the real question is: has he lost his mind? From a first class entrepreneur, has he suddenly become third tier?

 

 

 

Gio

 

He has not adapted to having large amounts of cash available.  It is all back to the argument you had on the other thread.  If they are gojng to be in the insurance business they need to invest for cash flow, not lumpiness.  If they are going to be a PE shop then this is fine.  The high debt, and poor cash flow of this style is damaging the insurance operation. 

 

Again, I repeat: 1.4 billion could have generated a lot of cash flow directly to Fairfax.  150 to 250 million per year.  instead it was thrown away on a speculation.  Think about that while you defend them Gio. 

[A_Hamilton]

To be fair to Prem, I have noticed his inconsistencies more than anyone else, because I have followed FFh so closely for so long. 

 

Al,

of course he has his inconsistencies! Yet, he is the one who created an $8 billion company from scratch. Not me, neither you, nor anyone on the board (at least that I know of!).

Therefore, the real question is: has he lost his mind? From a first class entrepreneur, has he suddenly become third tier?

 

 

 

Gio

 

He has not adapted to having large amounts of cash available.  It is all back to the argument you had on the other thread.  If they are gojng to be in the insurance business they need to invest for cash flow, not lumpiness.  If they are going to be a PE shop then this is fine.  The high debt, and poor cash flow of this style is damaging the insurance operation. 

 

Again, I repeat: 1.4 billion could have generated a lot of cash flow directly to Fairfax.  150 to 250 million per year.  instead it was thrown away on a speculation.  Think about that while you defend them Gio.

 

Where are you finding these businesses with sustainable cash flow yields of 11-18% in this environment? I want in on that action.

[A_Hamilton]

Today BB has 3B in cash & 1B in convertible debt.  For simplicity sake let's assume the rest nets out to 0, for a tangible value of $2B.

 

The company is still generating 1B of free cashflow annually despite all of the crap it has been through.  If you believe in Chen & his team, then this is a bargain.

 

I am with Prem on this one.  He has often said that you can't over pay for a an excellent leader.  I'm hoping to meet with Chen during the Shareholder meeting to confirm my suspicions that he is the right person to turn BB around.

 

wrong. the company is incinerating cash. it burned almost half a billion in the last 39 weeks and cash burn accelerated in the most recent quarter. your fcf number is astonishingly wrong. Chen's stated objective is to "arrest" cash burn.

 

Thank you Wellmont.

 

I was seating here since yesterday waiting for someone to point out that barely two months after the $1B cash infusion (after the failed go private attempt) Blackberry is going back to Fairfax for $250M more in cash. And no one is asking why, or even considering it to be worrisome.

Remember the days when part of the RIM bull case was how they had all this cash on their balance sheet with no debt etc... but now two months can't go by without the need for an additional cash infusion. Come on guys... COME ON!!

 

BBRY didn't go back to FFH. FFH was given an option to invest and they exercised it. The question is did FFH exercise it without partners because i.) they believe strongly in the story, ii.) the converts are worth more than the original tranche as the common has rallied since the first $1 billion piece was announced, or iii.) cash burn is terrible and/or FFH couldn't find anyone else willing to put a penny into this thing.

[bearprowler6]

To be fair to Prem, I have noticed his inconsistencies more than anyone else, because I have followed FFh so closely for so long. 

 

Al,

of course he has his inconsistencies! Yet, he is the one who created an $8 billion company from scratch. Not me, neither you, nor anyone on the board (at least that I know of!).

Therefore, the real question is: has he lost his mind? From a first class entrepreneur, has he suddenly become third tier?

 

 

 

Gio

 

He has not adapted to having large amounts of cash available.  It is all back to the argument you had on the other thread.  If they are gojng to be in the insurance business they need to invest for cash flow, not lumpiness.  If they are going to be a PE shop then this is fine.  The high debt, and poor cash flow of this style is damaging the insurance operation. 

 

Again, I repeat: 1.4 billion could have generated a lot of cash flow directly to Fairfax.  150 to 250 million per year.  instead it was thrown away on a speculation.  Think about that while you defend them Gio.

 

Where are you finding these businesses with sustainable cash flow yields of 11-18% in this environment? I want in on that action.

 

In defence of Prem (and of Gio)---I believe it is unfair to dismiss BB as a "speculation". FFH was not the only investor in the recent convertible offering. Have Markel; Mackenzie, Brookfield and Canso all lost their minds? I sincerely doubt it! BB is restructuring! Restructurings are complicated, stressful, difficult and not for the faint of heart. They do not occur at a measured pace. Ideally the restructuring should occur out of the glare of the public markets however for a number of reasons that could not happen in this case. Having "effective" control of a restructuring is the best way to protect your position. Prem has done that. John Chen appears to be the "real deal" and is comfortable in these type of situations. Time will tell---patience is required on this one!

[Uccmal]

To be fair to Prem, I have noticed his inconsistencies more than anyone else, because I have followed FFh so closely for so long. 

 

Al,

of course he has his inconsistencies! Yet, he is the one who created an $8 billion company from scratch. Not me, neither you, nor anyone on the board (at least that I know of!).

Therefore, the real question is: has he lost his mind? From a first class entrepreneur, has he suddenly become third tier?

 

 

 

Gio

 

He has not adapted to having large amounts of cash available.  It is all back to the argument you had on the other thread.  If they are gojng to be in the insurance business they need to invest for cash flow, not lumpiness.  If they are going to be a PE shop then this is fine.  The high debt, and poor cash flow of this style is damaging the insurance operation. 

 

Again, I repeat: 1.4 billion could have generated a lot of cash flow directly to Fairfax.  150 to 250 million per year.  instead it was thrown away on a speculation.  Think about that while you defend them Gio.

 

Where are you finding these businesses with sustainable cash flow yields of 11-18% in this environment? I want in on that action.

 

It is tougher now, I agree, but it wasn't that tough less than a year ago.  I have suggested companies that FFh has had past involvement with or is involved with now on other threads.  They were cheaper last year. 

 

The thing is that FFh doesn't need to invest in BBRY.  They have been issuing shares to finance this.  They could just wait and gather cash for better opportunities. 

 

Bearprowler, still keeping the faith after all these years?  BBRy is speculative due to the industry it is in.  Everyone else from all sides is eating their lunch:  Apple, Google, MSFT, Amazon, GM.  Google is working on self driving cars - that sort of negates the QNX argument.  The handset business is all but dead in the water.  The security business has been attacked from all sides.  I can see all this as a lay person.  Mike L. Was the real deal, and Prem "liked the guy in charge"; same with T Heins. 

 

The reason it is speculative is because no one on this board or at Fairfax can tell me that the business has anything salvageable, or how they will make money next year, or in 3 years, or 5 years. And they are burning a billion here and a billion there, on failed marketing and experiments.  They should have listened to Jim Balsillie who was pushing to get out of the handset business and focus on enterprise two years ago before he washed his hands of this. 

 

 

[Guest wellmont]

In defence of Prem (and of Gio)---I believe it is unfair to dismiss BB as a "speculation". FFH was not the only investor in the recent convertible offering. Have Markel; Mackenzie, Brookfield and Canso all lost their minds? I sincerely doubt it! BB is restructuring! Restructurings are complicated, stressful, difficult and not for the faint of heart. They do not occur at a measured pace. Ideally the restructuring should occur out of the glare of the public markets however for a number of reasons that could not happen in this case. Having "effective" control of a restructuring is the best way to protect your position. Prem has done that. John Chen appears to be the "real deal" and is comfortable in these type of situations. Time will tell---patience is required on this one!

 

in the context of pw two classes of investment in bbry, the CNV debt is sui generis. The debt is money good and supports his equity, which, in my mind, the merit of which is still an open question. Second, pw was probably the book runner of this CNV bond. It's a very attractive piece of paper given there was net cash on the balance sheet and no debt ahead of it. I can't see how it isn't money good under the bleakest scenarios. As book runner, he took this paper to his friends first, who seemed to have said "yes". Note, they say yes to debt, no to equity.

 

It's important to segment PW investments. He has stopped investing in bbry equity. His bbry equity investments were mistakes. His debt investments in bbry are far from it, and are supportive of his equity position (he's trying to salvage it). you can say pw lost his mind investing in bbry equity. but has quickly found it again.

[Guest wellmont]

 

BBRY didn't go back to FFH. FFH was given an option to invest and they exercised it. The question is did FFH exercise it without partners because i.) they believe strongly in the story, ii.) the converts are worth more than the original tranche as the common has rallied since the first $1 billion piece was announced, or iii.) cash burn is terrible and/or FFH couldn't find anyone else willing to put a penny into this thing.

 

well lets look on the bright side here and focus on 1. I don't believe in looking at the bright side but on message boards it seems to be the way to do things. If the "story" as you say, is working, then why add potential dilution to his significant equity stake? if the "story" is working, $2b should be plenty of cash right? and at some point a "story" that is working would start to produce FCF and grow it and then start returning cash to equity holders. That's what a working story is.

 

Be that as it may, that scenario would ignore the truly Disastrous numbers that bbry reported last quarter, just after raising $1b. Remember when posters here were baffled about "why" a strong company like bbry would need to borrow that kind of money? I said at the time that, these bonds had a purpose. that bbry was about to burn a ton of cash. and even I was shocked at how much cash they burned, and how awful the performance of this business is. Now you see them borrowing $250m very quickly again. The stock price has helped make this debt easier to "swallow" for the buyer. Good times. But as you point out it's how you want to interpret it. I guess I just will never understand the propensity for some investors to interpret events in the most positive light possible.

[giofranchi]

Again, I repeat: 1.4 billion could have generated a lot of cash flow directly to Fairfax.  150 to 250 million per year.  instead it was thrown away on a speculation.  Think about that while you defend them Gio.

 

Here is what I think is the simple truth: without equity hedges, we wouldn’t even be here talking about BBRY.

It is as simple as that: no one here can stomach those damned equity hedges! But that’s the way they operate… And that’s the reason why it is so difficult to follow them.

 

Gio

 

[deadspace]

 

BBRY didn't go back to FFH. FFH was given an option to invest and they exercised it. The question is did FFH exercise it without partners because i.) they believe strongly in the story, ii.) the converts are worth more than the original tranche as the common has rallied since the first $1 billion piece was announced, or iii.) cash burn is terrible and/or FFH couldn't find anyone else willing to put a penny into this thing.

 

well lets look on the bright side here and focus on 1. I don't believe in looking at the bright side but on message boards it seems to be the way to do things. If the "story" as you say, is working, then why add potential dilution to his significant equity stake? if the "story" is working, $2b should be plenty of cash right? and at some point a "story" that is working would start to produce FCF and grow it and then start returning cash to equity holders. That's what a working story is.

 

Be that as it may, that scenario would ignore the truly Disastrous numbers that bbry reported last quarter, just after raising $1b. Remember when posters here were baffled about "why" a strong company like bbry would need to borrow that kind of money? I said at the time that, these bonds had a purpose. that bbry was about to burn a ton of cash. and even I was shocked at how much cash they burned, and how awful the performance of this business is. Now you see them borrowing $250m very quickly again. The stock price has helped make this debt easier to "swallow" for the buyer. Good times. But as you point out it's how you want to interpret it. I guess I just will never understand the propensity for some investors to interpret events in the most positive light possible.

 

 

http://www.theglobeandmail.com/globe-investor/investment-ideas/prem-watsas-million-dollar-blackberry-bet/article16111565/

 

looks like PW is still buying the equity - not just the debt.......

[Uccmal]

Again, I repeat: 1.4 billion could have generated a lot of cash flow directly to Fairfax.  150 to 250 million per year.  instead it was thrown away on a speculation.  Think about that while you defend them Gio.

 

Here is what I think is the simple truth: without equity hedges, we wouldn’t even be here talking about BBRY.

It is as simple as that: no one here can stomach those damned equity hedges! But that’s the way they operate… And that’s the reason why it is so difficult to follow them.

 

Gio

 

 

Fully agreed Gio.  And I would still be a shareholder.  That bet has turned out to be an inverse of the CDS bet only worse. 

[TwoCitiesCapital]

http://www.bnn.ca/blackberry-to-sell-605m-in-new-debentures-to-fairfax-other-investors-1.555845

 

For those not following the Blackberry thread, $605M more being issued in converts at 3% to help fund the $1.25B purchase of the 6% coupon converts.

 

Don't know how this impacts Fairfax in that there's no details on how much of the $605M they're taking and if they're selling any of their higher coupon converts.

[Parsad]

You guys have it a bit mixed up.  They are exchanging the converts.  Total dollar amount of the convertible position remains the same.  Cheers!

[plato1976]

Do they really generate 1B annual "free" cash flow now?

then why do they need to raise more debts?

I am afraid it's leaking cash in reality

 

Today BB has 3B in cash & 1B in convertible debt.  For simplicity sake let's assume the rest nets out to 0, for a tangible value of $2B.

 

The company is still generating 1B of free cashflow annually despite all of the crap it has been through.  If you believe in Chen & his team, then this is a bargain.

 

I am with Prem on this one.  He has often said that you can't over pay for a an excellent leader.  I'm hoping to meet with Chen during the Shareholder meeting to confirm my suspicions that he is the right person to turn BB around.

[TwoCitiesCapital]

You guys have it a bit mixed up.  They are exchanging the converts.  Total dollar amount of the convertible position remains the same.  Cheers!

 

Yes. Quite right. Link below provides more detail.

 

http://www.marketwatch.com/story/blackberry-restructures-convertible-debt-to-cut-interest-expenses-shares-halted-2016-08-26

[petec]

So is this essentially a straight transfer of value from the convert holders to the equity holders (lower interest payments)?

 

Edit: not so simple, hadn't noticed the convert holders were getting 106.7.

[Liberty]

Do they really generate 1B annual "free" cash flow now?

then why do they need to raise more debts?

I am afraid it's leaking cash in reality

 

Today BB has 3B in cash & 1B in convertible debt.  For simplicity sake let's assume the rest nets out to 0, for a tangible value of $2B.

 

The company is still generating 1B of free cashflow annually despite all of the crap it has been through.  If you believe in Chen & his team, then this is a bargain.

 

I am with Prem on this one.  He has often said that you can't over pay for a an excellent leader.  I'm hoping to meet with Chen during the Shareholder meeting to confirm my suspicions that he is the right person to turn BB around.

 

A quick look at the company's Q1 2017 (hate these weird fiscal years) release shows:

 

http://ca.blackberry.com/content/dam/bbCompany/Desktop/Global/PDF/Investors/Documents/2017/Q1FY2017_Financial_Information.pdf

 

Free Cash Flow

Free cash flow is a measure of financial performance calculated as operating cash flow minus capital expenditures. For the three months ended May 31, 2016, the Company reported free cash flow of ($65) million, which consisted of net cash used in operating activities of $61 million, plus capital expenditures of $4 million. However, the Company anticipates generating positive free cash flow and positive adjusted EBITDA for the 2017 fiscal year.