That Was Fast: Nokia Draws Down The $2B In Convertible Bonds Offered By Microsoft Earlier This Week

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If we needed some more confirmation of how urgent the financial situation was over at Nokia, we got a glimpse of it today. The company announced that it would be drawing down the €1.5 billion ($2 billion) in convertible bonds offered to it by Microsoft earlier this week at the same time as the announcement of its $7.2 billion acquisition of Nokia’s mobile phone business. Nokia says it will be using the proceeds towards its acquisition of outstanding NSN shares, “and for general corporate purposes.” They will be issued on September 23.

The €1.5 billion, as detailed in the original announcement of the deal, was being made available in three tranches of €500 million. Nokia is going all in on these, with the three tranches respectively maturing in five, six and seven years.

There has been a lot of speculation about what finally pushed Nokia into making the deal to sell its handset business, and these bonds play into that bigger story.

Elop characterized it as a realization that it simply didn’t have the financial resources to meet the challenge of clawing back to the top of the smartphone market against companies like Apple, Google and Samsung with much deeper pockets — lined because they not only overtook Nokia in smartphones, but because they did so with appealing devices that tapped into a key moment just when consumers were starting to buy them in earnest.

That certainly is true, but there may have been other forces in play — such as the fact that Nokia simply didn’t have that much money for anything, even to sustain a middling phone business. “I theorize that Nokia was either going to switch to Android or was on the verge of going bankrupt,” wrote mobile pundit Ben Thompson, who went on to note that the €1.5 billion in financing was one indication of the latter.

The fact that it will be used to help finance Nokia’s NSN business — Nokia announced it would buy out partner Siemens in July for €1.7 billion — is really just a shift of where the resources are going. Regardless of how it’s cut, Nokia needs the money bandage in one place or another.

Nokia notes that if it manages to complete the sale of its Devices & Services business, the bonds “will be redeemed and the principal amount and accrued interest netted against the Sale of the D&S Business proceeds.” If the deal falls through, they “will be redeemed at par on their respective maturity dates, unless otherwise redeemed, purchased, converted or cancelled in accordance with their terms.”

Nokia notes that Microsoft will not sell any of the bonds or convert them to Nokia shares before the sale closes, and if the sale does not complete, it will be able to sell the first tranche immediately but wait one and two years for the next two tranches.