Fairfax Financial Holdings Ltd.’s proposed buyout of Blackberry Ltd. could have negative implications for the firm’s credit profile, says Fitch Ratings.
The rating agency says that, based on Fairfax’s past track record, it expects that any potential purchase of BlackBerry will most likely be done within current rating expectations. However, it says that the potential deal for BlackBerry remains fluid, as the current offer is in the form of a letter of intent, not a definitive agreement.
Fitch says that it could take negative rating actions if Fairfax (TSX:FFH) decides to increase its ownership in BlackBerry in a way that would significantly increase financial leverage, decrease holding company cash, or deplete the capital of its insurance subsidiary. It would also view the deal negatively, if it resulted in a concentrated investment of Fairfax’s capital.
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Uncertainty about BlackBerry’s business model, and the future success of its new strategy to move away from consumer products, influences Fitch’s tolerance for deviations in leverage, or any concentration risks.
It also notes that there is uncertainty about the make-up of the consortium, which could includes Canadian pension funds such as Canadian Pension Plan Investment Board and Ontario Teachers’ Pension Plan. And, Fairfax still has the option to exit the deal, as it is subject to a due diligence review that is expected to be completed by November 4.