petec

Interestingly, these are two investments that the “why doesn’t he just buy quality compounders” faction on this board hated. And they had good reason to, given Prem’s history with Resolute et al. But I think Prem did three things better this time: 1) buy at the right point in the cycle (years of underinvestment in Atlas’ case, and a sea change in Chinese attitudes to capacity expansion in Stelco’s). 2) buy better balance sheets. 3) buy better management. Edit: in Atlas’ case I’d add 4) structure the deal better. The warrants have been gold.

I think some warrant might also have converted when Seaspan redeemed debt last month.

I think it was a condition of the Riverstone sale - OMERS only agreed to sell their Riverstone stake if they could reinvest somewhere else.

I thought it was - both on here and on the call - but I could be wrong. My recollection is that the spike happened just before BlackBerry reported, which is a quiet period. Someone on here pointed out that it might not be coincidence that the stock spikes when a major shareholder can’t sell.

I agree, but why do you say that? We know they were restricted for both prior spikes, so I’m not sure we can infer anything from those episodes. My agreement is just a gut instinct.

Unlikely. Almost certainly this bond was lent out of insurance float.

Well this is what I am wondering. In round numbers cash + marketables + Riverstone + Brit - Eurolife comes to $2.4bn. We know they plan to repay $500m on the revolver and Prem has historically talked of the need to have $2bn in cash + marketables at the holdco. So yes cash is building, but by their own benchmark they are not flush. Personally I think they should be buying stock, not repaying a revolver that runs to 2026, but I appreciate their conservatism.

Actually this was cash and investments. The breakdown is complex, and I’m not entirely sure how much is highly liquid/cash equivalent. It might be significantly less.

Riverstone sale has closed, so presumably the Brit/OMERS transaction will too, and the holdco will have some more cash. There was $500m on the revolver (which they have said they will pay down) at the end of June.

Agreed - but the real estate and royalty make up a nice heads I win, tails I don’t lose package.

Exactly.

This article has a bit more detail. Putman Investments to buy Toys 'R' Us from Fairfax, brimming with ideas for overhaul | CTV News

Viking, I very largely agree with that analysis. Fairfax is getting simpler to manage and greater access to third party capital to fund growth, and that's good. Whether it is also getting better management for its investee businesses...I guess we will see. The one I don't know much about is Exco. The stock appears to trade but I can't find financials and you need a login to get to the investor relations page. How does that work?

Yes, he's done ok!

I forgot to say that there is another potentially significant one, which is the $100m invested in 55.5m common shares of Foran Mining, plus warrants to buy 16m more. Fully exercised that gives Fairfax about 25% of the company, which is drilling up a copper deposit with promising results: foran_results_-_four_infill_holes_290721_final.pdf (foranmining.com) Clearly this is risky, but it could also turn into a huge win. Fairfax paid $1.80 per share and the shares are at $2.12 now, so they already have a paper gain (and effectively got the warrants, which exercise at $2.09, for free). Pierre Lassonde owns nearly 10% for Foran, for what that's worth.

They could dividend it up, but my guess is they won’t until the hard market ends. And if they do, they’ll dividend excess capital, which logically comes from realised profits, of which there are none on the payback of debt at par. So my guess is that yours is a forlorn hope!

The only cash that can be spent on buybacks are sales of insurance subsidiaries by the holding company, or dividends from an insurance sub to the holdco. This is the repayment of a loan from an insurance sub to an investee. Unless it’s dividended to the holdco, which it won’t be because that would deplete insureco capital, it can’t be used for repurchase.

+1 - I think this is key. I missed this. What happened?

Well said. Fairfax started turning around years ago.

I'd suggest anyone interested in Fairfax reads the Atlas and Stelco call transcripts. Very interesting.

I don't think you need to worry about this. I think Fairfax basically recapitalised Seaspan in 2018 either on the condition that Sokol was involved, or because he was involved. They literally did it to let him do his thing and they won't change that now.

And cumulative earnings over the next 4 years of nearly $2.3bn.

I think it’s less about optics and more about clearing the mind. Losers (which these are) take time and attention away from seeking better ideas.

Agreed. They could definitely take advantage of spikes more. However (responding to another post above) they can’t sell RFP to buy back shares. The portfolio investments are held at the insurance subs and represent insurance sub capital. To be used as a buyback they’d need to be dividended to the holdco, depleting insurance sub capital and therefore underwriting capacity.

I know almost nothing about it and so far I think that's too much.