BlackBerry (BB) Stock Falls Following Private Offering Proposal

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For many tech stocks, it’s been a solid start to the year. However, for certain beaten-down legacy companies like BlackBerry (NYSE:BB), intense selling pressure continues. Today’s decline of more than 17% in BB stock this afternoon is indicative of the momentum this security software company has seen in recent years.

Yes, there was a massive pop during the meme mania, which took many popular stocks higher in short order. But overall, the longer-term trend has been down and to the right for this stock. Accordingly, seemingly any catalyst has been enough to drive investors to search for other tech stocks to diversify into.

Today’s catalyst appears to be BlackBerry’s announced issuance of $160 million of convertible senior notes. This private offering was announced yesterday, and investors don’t seem to like what they’re hearing.

Let’s dive more into what was announced and what this means for investors.

BB Stock Plunges on Announcement of Private Offering

To a certain extent, this private offering shouldn’t really have caught investors off guard. Like many other indebted tech companies, in order to pay previously-existing bonds or debentures, issuing new debt is really the only means many companies have. For BlackBerry, a company that’s struggled to retain profitability, this is certainly the case with its recent offerings.

These convertible senior notes will be due in 2029 and will essentially be used to repay existing unsecured debentures, which have an expiration date of Feb. 15. Pricing and the terms of this offering will be announced at the time of pricing of the offering.

Thus, we don’t know exactly what interest rate BlackBerry will be forced to pay to refinance its debt. But we do know that the relatively low borrowing costs ascribed to the existing $150 million unsecured loan will not be better than previous terms (the company secured a sweet rate of 1.75%). Accordingly, interest expense can be expected to rise, making the company’s post-to-profitability a more difficult one.

To some degree, today’s selloff appears to be somewhat unwarranted. Many investors knew the day would come and this debt would need to be rolled over. That said, BlackBerry’s recent debt issuance may certainly provide some insights for other less-than-profitable companies looking to refinance their bonds or debentures, which are set to roll over this year. Profitability matters and that’s on full display today.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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