Debentures

12 Months Ended

Feb. 29, 2024

DEBENTURES

3.00% Convertible Senior Notes

On January 29, 2024, the Company issued $200 million aggregate principal amount of 3.00% senior convertible unsecured notes (the “Notes”) in an offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The Company used the net proceeds of the issuance of the Notes principally to repay its outstanding $150 million aggregate principal amount of 1.75% extendible convertible unsecured debentures (the “Extension Debentures” and, collectively with the “2020 Debentures” (as defined below) and the Notes, the “Debentures”) at maturity on February 15, 2024.

The Notes are due on February 15, 2029 unless earlier converted, redeemed, or repurchased. Each $1,000 principal amount of the Notes is convertible into 257.5826 common shares of the Company based on the initial conversion rate, for a total of 52 million common shares at a price of $3.88 per share, subject to adjustments. Prior to the close of business on the business day immediately preceding November 15, 2028, the Notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding February 15, 2029. The Company may satisfy any conversions of the Notes by paying or delivering, as the case may be, cash, its common shares or a combination of cash and its common shares, at the Company’s election (or, in the case of any Notes called for redemption that are converted during the related redemption period, solely its common shares). Covenants associated with the Notes include general corporate maintenance, existence and reporting requirements. The Notes will bear interest at a rate of 3.00% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2024.

Under specified events of default, the outstanding principal and any accrued and unpaid interest on the Notes will become immediately due and payable upon request of holders holding not less than 25% of the principal amount of the Notes then outstanding. During the occurrence of certain specific events of default, the Company may elect to cure such events of default by increasing the 3.00% interest rate on the Notes by 0.25% to 0.50% per annum.

The Company may not redeem the Notes prior to February 22, 2027, except in the event of certain tax law changes. On or after February 22, 2027, the Company may redeem for cash all or a portion of the Notes, at the Company’s election, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect on each of at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a cash redemption price equal to 100% of the aggregate principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a fundamental change, as defined in the indenture governing the Notes, subject to certain conditions the Company will be required to make an offer to repurchase for cash all of the outstanding Notes (or any portion thereof that a holder determines to sell to the Company) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In connection with certain corporate events or if the Company calls the Notes for redemption, the Company will, under certain circumstances, increase the conversion rate for noteholders who elect to convert their Notes in connection with such corporate event or convert their Notes called for redemption.

The Company has recorded the Notes, including the debt itself and all embedded derivatives, at cost less debt issuance costs of $6 million and present the Notes as a single hybrid financial instrument. No portion of the embedded derivatives required bifurcation from the host debt contract.

The following table summarizes the change in the Notes for the fiscal year ended February 29, 2024 from their date of issuance:


	As at
	February 29, 2024


Principal received as of January 29, 2024	200
Debt issuance costs paid	(6)
Balance as at February 29, 2024	$	194

Extension Debentures and 2020 Debentures

On November 17, 2023, the Company issued the Extension Debentures in a private placement to certain controlled affiliates of Fairfax Financial Holdings Limited (“Fairfax”). The Company used the net proceeds from the issuance of the Extension Debentures, together with cash on hand, to repay its outstanding $365 million aggregate principal amount of 1.75% unsecured convertible debentures (the “2020 Debentures”) at maturity on November 13, 2023. Aside from the maturity date, the terms of the Extension Debentures were substantially identical to those of the 2020 Debentures, except that the Extension Debentures were not listed on any stock exchange and did not involve an indenture trustee. The Company used a portion of the proceeds from the issuance of the Notes to repay the Extension Debentures at maturity on February 15, 2024.

Each $1,000 principal amount of Extension Debentures was convertible at any time prior to the third business day prior to the maturity date into 166.67 common shares of the Company, for a total of 25 million common shares at a price of $6.00 per share, subject to adjustments. Covenants associated with the Extension Debentures included limitations on the

Company’s total indebtedness. Interest on the Extension Debentures was payable on the maturity date in arrears at a rate of 1.75% per annum.

Under specified events of default, the outstanding principal and any accrued interest on the Extension Debentures become immediately due and payable upon request of holders holding not less than 25% of the principal amount of the Extension Debentures then outstanding. During an event of default, the interest rate would increase to 5.75% per annum.

The Extension Debentures were subject to a change of control provision whereby the Company would be required to make an offer to repurchase the Extension Debentures at 115% of par value if a person or group (not affiliated with Fairfax) acquired 35% of the Company’s outstanding common shares, acquired all or substantially all of its assets, or if the Company merged with another entity and the Company’s existing shareholders hold less than 50% of the common shares of the surviving entity. Additionally, the Extension Debentures could not be converted to the extent that, after giving effect to the conversion, the holder would beneficially own or exercise control or direction over more than 19.99% of the Company’s then issued and outstanding common shares.

Due to the conversion option and other embedded derivatives within the Extension Debentures, and consistent with the Company’s accounting for the 2020 Debentures, the Company had elected to record the Extension Debentures, including the debt itself and all embedded derivatives, at fair value and present the Extension Debentures as a single hybrid financial instrument. No portion of the fair value of the Extension Debentures had been recorded as equity, nor would be if the embedded derivatives were bifurcated from the host debt contract.

Each period, the fair value of the Extension Debentures and 2020 Debentures were recalculated and resulting gains and losses from the changes in fair value of the Extension Debentures and 2020 Debentures associated with non-credit components were recognized in income, while the change in fair value associated with credit components was recognized in accumulated other comprehensive loss (“AOCL”). The fair value of the Extension Debentures was determined using observable interest rate curves, and the market price and volatility of the Company’s common shares.

The following table summarizes the change in fair value of the Extension Debentures from their date of issuance, which also represents the total changes through earnings of items classified as Level 2 in the fair value hierarchy:



	February 29, 2024
Principal received as of November 17, 2023	$	150
Change in fair value of the Extension Debentures	—
Maturity of the Extension Debentures on February 15, 2024	(150)
Balance as at February 29, 2024	$	—

The following table summarizes the change in fair value of the 2020 Debentures for the years ended February 29, 2024 and February 28, 2023 which also represents the total changes through earnings of items classified as Level 3 in the fair value hierarchy:



	February 29, 2024
Balance as at February 28, 2022	$	507
Change in fair value of the 2020 Debentures	(140)
Balance as at February 28, 2023	367
Change in fair value of the 2020 Debentures	(2)
Maturity of the 2020 Debentures on November 13, 2023	(365)
Balance as at February 29, 2024	$	—

The following table shows the impact of the changes in fair value of the Extension Debentures and 2020 Debentures for the years ended February 29, 2024, February 28, 2023 and February 28, 2022:


	For the Years Ended
		February 29, 2024		February 28, 2023		February 28, 2022







Income associated with the change in fair value from non-credit components recorded in the consolidated statements of operations		$	2	$	138	$	212
Income associated with the change in fair value from instrument-specific credit components recorded in AOCL		—		2		1
Realized losses associated with the change in fair value from credit components recorded in the consolidated statements of operations on maturity of the Extension Debentures and 2020 Debentures		(6)		—		—
Realized losses associated with the change in fair value from credit components released from AOCL on maturity of the Extension Debentures and 2020 Debentures		6		—		—
Total decrease in the fair value of the Extension Debentures and 2020 Debentures		$	2	$	140	$	213

For the year ended February 29, 2024, the Company recorded interest expense related to the Debentures of $6 million, which has been included in investment income, net on the Company’s consolidated statements of operations (fiscal 2023 - $6 million; fiscal 2022 - $6 million). The Company is required to make semi-annual interest-only payments of approximately $3 million during the remaining term the Notes are outstanding.

Fairfax, a related party under U.S. GAAP due to its beneficial ownership of common shares in the Company after taking into account potential conversion of the Extension Debentures, owned $330 million principal amount of the 2020 Debentures and $150 million principal amount of the Extension Debentures. As such, the payment of interest on the Extension Debentures and such portion of the 2020 Debentures, and their repayment, to Fairfax represented related party transactions.