petec

Berkley is, as far as I can tell, a standard timeshare business. Individuals own the accommodation but the resorts are owned by the business. The business also charges annual and transaction to the owners and runs restaurants etc onsite. These assets and cash flows are now effectively owned by FFH since they own over 90% of the capital stack. The opportunity is to increase short term rentals when the timeshare owners are not in residence. The benefits are presumably shared between the timeshare owners and the business. I very much hope they are not leasing properties long term and renting them short term. That kind of duration mismatch is a recipe for disaster.

Not sure I agree. The operator has huge upside but not much downside - not really what I would call skin in the game. And it's anything but asset light. It just doesn't have any equity because it is levered to the hilt!

My boss in about 2005, in my first investing job, had once asked Stephen Markel (I think) what he thought of Prem. The answer was: he's got balls of steel. I've never forgotten that!

Far point about the 5y. I was forgetting that little period of insanity.

I would add two things: 1) there's virtually no equity in the deal, so the junior part of the debt is effectively equity, and is earning equity-like returns as a result, which looks right. 2) these rates are not out of line with what I read about in the secured private credit market. Obviously we don't know the asset economics so we can't judge whether Fairfax are getting adequately paid for the risk, but the rates don't stand out to me as worrying per se.

Yes. I feel we need to get some board members onto the calls. We would ask far better questions than the analysts!

If it is 6% that would be astonishing!

Has anyone attempted to reverse-engineer the terms of the Brit minority stake sale that has now been closed? Sorry if I missed it.

BTW something that I don't think has been mentioned: in the last year they've sold $1.85bn of 2054 and 2055 debt at an average rate just under 6%. I am inclined to view that as an asset, not a liability! It also just astonishes me how "on the front foot" they are compared to a few years ago. Consider the cash laid out just recently for Sleep Country, Vacatia, Brit, Peak, and buybacks. Great to see.

Yes.

Agree 100%. I like BRK's method, but it is not the only way. I have no issue with FFH creating long vesting plans to issue treasury stock to employees as part of their pay. And while I am not sure about this, I think FFH does it with all or most employees, not just senior managers. BRK's method works with people earning millions but I am not sure expecting/forcing relatively lower-paid employees to buy stock out of their salary is workable - in this instance, I think the FFH system is actively better. I believe at least some details are disclosed in subsidiary filings - most of the employees are at the subsidiaries after all, not the holdco. I have definitely seen details for one of the subsidiaries before, I think maybe Allied. Management also mentioned 15y vesting periods on the 1q18 call and have mentioned tying performance-based comp to 15% book value growth in meetings. Yes, but it's not as simple as saying: SBC is too large. We need to know how big it is compared to base pay, how it vests, whether there's anything unusual about the current period (e.g. a period of excellent BV and stock price performance might be driving additional vesting), etc.

Great, thanks. What I love about these deals is the ability to use fixed income investments to create equity optionality.

I also love these deals. But having skimread your pdf, I have questions. You seem to suggest that Vacatia's existing business is included in the deal. Where are you seeing that? From the (very limited) detail given in the press releases, Vacatia will run Blizzard, but I don't think Vacatia is being merged into Blizzard. As I read it, in effect Fairfax is buying the assets with high yield debt, Vacatia will run them, and Fairfax and Vacatia share the upside 50/50 via equal participation in the equity (which is virtually worthless on day 1). If so it's an incredible incentive for Vacatia, who make out like bandits if they create value, but don't have to put up any capital. It's also a good structure for Fairfax, who get lots of interest income secured on real assets, and equity upside driven by yet another world class operating partner. That said, not all of these deals have worked out beautifully. The KW equity investment is underwater, the Westaim deal went nowhere, etc.

I think this is exactly right and it has been going on for years. If anyone thinks total compensation is excessive at Fairfax I think they need to make a clear argument for that based on market rates for the relevant employees. But in the absence of that we should give full credit for A comp structure (buying shares at market and giving them to employees) that aligns employees to shareholders better than most others, especially if there are long lockups or vesting periods, which I am pretty sure there are. Extremely smart capital allocation, building a war chest of treasury stock at cheap prices to fund years of employee comp.

I have to disagree. Are salaries and bonuses "beneficial to outside shareholders"? Of course - the company would collapse without them. So surely paying some of that compensation in the form of shares that have been bought in the market is even better, since it aligns employees perfectly with shareholders? (NB options don't do this since there is no downside risk.) I hope there is a decent lockup. I do know Fairfax's stock compensation schemes have very long vesting periods.