In the agreement, announced last week, for Nokia to sell its device business to Microsoft, there were a number of linked provisions. One of these was that Microsoft agreed to make available €1.5 billion financing (loan), in the form of three €500 million tranches of convertible bonds, regardless of the out come of the transaction.

Nokia has now announced that it is drawing down on all of this financing and as a result Nokia will issue three tranches of senior unsecured bonds, each with a nominal value of €500 million. The company intends to use the money raised to prepay financing raised for the acquisition of Siemens shares in Nokia Siemens Networks (NSN) and for "general corporate purposes".

From the Nokia press release:

The key terms of the Bonds to be issued are as follows:

• The first tranche (the "2018 Bonds") matures in 5 years and has a 1.125% per annum coupon payable semi-annually with an initial conversion price of EUR 3.9338.
• The second tranche (the "2019 Bonds") matures in 6 years and has a 2.5% per annum coupon payable semi-annually with an initial conversion price of EUR 4.0851.
• The third tranche (the "2020 Bonds") matures in 7 years and has a 3.625% per annum coupon payable semi-annually with an initial conversion price of EUR 4.2364.

If the transaction between Microsoft and Nokia goes ahead the bonds, which are expected to be issued on 23rd September, will be redeemed against the sale cost of Nokia Devices & Services business. The Nokia press release makes it clear the terms are favourable to Nokia should the transaction not go ahead:

Should the Sale of the D&S Business not be completed, Microsoft would have the right to sell the 2018 Bonds immediately. Microsoft has agreed not to sell any of the 2019 Bonds prior to the second anniversary of their issuance date and any of the 2020 Bonds prior to the third anniversary of their issuance date.

Microsoft has also agreed not to convert any of the 2018 Bonds and any of the 2019 Bonds into Nokia shares prior to the second anniversary of their issuance date and for the 2020 Bonds prior to the third anniversary of their issuance date, except in a change of control situation. 

The terms of the bond suggest both companies are confident of gaining shareholder and regulatory approval for the transaction. The bonds can be seen as providing Nokia with bridge financing until the transaction has been completed and ensures that the company retains a healthy cash position, thus minimising an losses related to a need to raise capital at market rates in the immediate future. 

That Nokia has opted to immediately draw on the bonds will be seen in some quarters as confirmation that the company is low on readily available cash. However, given the relatively generous terms of the bonds and Nokia's current financial rating, it is also reasonable to conclude financing the NSN deal in the most efficient manner possible is also an important factor.