(The following statement was released by the rating agency)
CHICAGO, September 25 (Fitch) Fitch Ratings commented that while
Financial Holdings Ltd.'s (Fairfax) consortium bid for
BlackBerry Ltd. could
have potential negative credit implications, based on the
company's past track
record Fitch expects that any potential purchase of BlackBerry
would most likely
be done within current rating expectations.
Fitch notes that the potential deal for BlackBerry remains
fluid, as the current
offer is in the form of a letter of intent and not a definitive
the proposed offer, Fairfax would contribute its current 10%
BlackBerry to the transaction.
Fitch could take negative rating actions should Fairfax decide
to increase its
ownership in BlackBerry in a manner that would significantly
leverage, decrease holding company cash or deplete insurance
Fitch would also view negatively any acquisition, even if
that resulted in a concentrated investment of Fairfax's capital.
The value of
the current offer is $4.7 billion for all of BlackBerry, which
is very large
compared to Fairfax's reported total assets of $36.1 billion and
equity of $8.6 billion as of June 30, 2013.
Fitch recognizes that BlackBerry's business model is under
intense pressure, and
that the new strategy to move away from consumer products may
successful. This uncertainty influences Fitch's tolerance in its
deviations in leverage, or any concentration risks.
Fitch's ratings expect that Fairfax's financial leverage ratio
maintained at no higher than 35% (33% actual as of June 30,
operating earnings plus holding company cash-based interest and
dividend coverage no less than 4x (6.3x through the first six
months of 2013).
Fitch also anticipates that the company will continue to
maintain a sizable
amount of holding company cash and investments ($1.1 billion at
June 30, 2013).
Fairfax still has the option to exit the deal as it is subject
to a due
diligence review; Fairfax is expected to complete due diligence
by Nov. 4, 2013.
It is also open to other bidders to make competing offers for
Fairfax paid an average of $17 per share for its current 10%
BlackBerry, resulting in a current unrealized loss given the
current offer is $9
Uncertainty also surrounds the make-up of the consortium, but
Fairfax's CEO Prem
Watsa said in an interview with the Wall Street Journal that
funds would likely be involved. This could include Canadian
Investment Board and Ontario Teachers' Pension Plan. Fairfax has
a history of
making friendly acquisitions, often in Canadian companies, which
several insurance companies.
Brian C. Schneider, CPA, CPCU, ARe
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Dafina M. Dunmore, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
The issuer did not participate in the rating process, or provide
information, beyond the issuer's available public disclosure.
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