petec

Mes sentiments exactement.

You know the answer to that question. We discussed that about 2 years ago. It will be rolled because Blackberry doesn't have a surplus of cash and nobody other than FFH will lend them money. It is an encumbered asset for FFH. That is water under the bridge. Edit: Did I read incorrectly, or is it not $605m, and matures Nov 2020? It gets rolled in any case, but it just gives RIM a bit more time to burn through some cash. ;) SJ And as it was back then, BB is net cash and free cash positive. Specifically it has $880m on the BS and is projected to earn about $200m a year in FCF going forward, with positive FCF in every quarter. I’m only guessing here, but in the easiest lending environment in human history I’m going to go out on a limb and suggest they could get some debt if they needed it, which they don’t. I’m fairly sure it is $500m but less sure re Jan/Nov. EDIT: it’s November. My bad - but more time for the convert to be in the money ;) And it was $605, but Fairfax didn’t take all of it - I’m pretty sure they have 500m. Well, I must have been reading different financial statements than you. What I saw for the first 9 months of BB's year is that they reported small negative cash from operations on their cashflow statement. What is more, there is always a small amount of maintenance capex that is required, meaning they are burning cash by operating, and then burning a bit more just to allow themselves to continue to operate. The burn rate on operations and capex appears like it was $40m over the 9 months. It is well and good to project $200m FCF on a going-forward basis, but let's just say that I am from Missouri.... BB does have some cash on its BS, and theoretically, FFH could demand a cheque to settle those notes. So where would that leave everybody? Well, instead of the $880m cash on the BS, they would have $275m. Effectively, BB would be operating with very little room to manoeuvre. That would be all fine and good for FFH if the notes were FFH's only considerations -- if you just owned the notes, your answer would be "Tough shit. Cut us a cheque." But, FFH also owns a large slug of BB shares and Prem is on the BoD, so by insisting on re-payment of the notes you'd be kneecapping an equity investment that you cannot really divest in the short-term. If you believe that BB could borrow money, your view of their reputation is a good deal more favourable than mine. A lender would want to see a compelling prospect of BB generating meaningful FCF because if a lender were forced to petition BB into bankruptcy, there is much uncertainty about how much value could be recouped from an intellectual property firesale that would not be conducted until 2024 or 2025. It's a stinker for a lender, which is why FFH is involved. SJ An entirely reasonable reply. I am a little more hopeful that BB's operational dip is temporary. I'd also point out that its equity value to FFH is not only $200m so if the dip is not temporary, FFH have a strong incentive to burn the $200m in order to ensure recovery of the $500m. My guess is a halfway solution is likely: roll 50% and massively improve the conversion ratio on the other 50%. Keeps all the upside while lowering the downside. Revisit in November...

Agreed on both counts.

I keep meaning to come back to this thread and read/reply properly, but life and markets are getting in the way. But I have been thinking about this part and would make two observations: 1) The trust of insurance customers in FFH has survived far worse than having an AGT, or a Mosaic, or any of the myriad other organisations that end up consolidated on FFH's BS, default on its debt due to a localised issue. It is entirely reasonable to talk about non-recourse debt. 2) Whether it is important for investors or clients may not be the point. It's likely to be important for ratings agencies. We will have to agree to disagree. SJ What, twice in a day? ;)

You know the answer to that question. We discussed that about 2 years ago. It will be rolled because Blackberry doesn't have a surplus of cash and nobody other than FFH will lend them money. It is an encumbered asset for FFH. That is water under the bridge. Edit: Did I read incorrectly, or is it not $605m, and matures Nov 2020? It gets rolled in any case, but it just gives RIM a bit more time to burn through some cash. ;) SJ And as it was back then, BB is net cash and free cash positive. Specifically it has $880m on the BS and is projected to earn about $200m a year in FCF going forward, with positive FCF in every quarter. I’m only guessing here, but in the easiest lending environment in human history I’m going to go out on a limb and suggest they could get some debt if they needed it, which they don’t. I’m fairly sure it is $500m but less sure re Jan/Nov. EDIT: it’s November. My bad - but more time for the convert to be in the money ;) And it was $605, but Fairfax didn’t take all of it - I’m pretty sure they have 500m.

I keep meaning to come back to this thread and read/reply properly, but life and markets are getting in the way. But I have been thinking about this part and would make two observations: 1) The trust of insurance customers in FFH has survived far worse than having an AGT, or a Mosaic, or any of the myriad other organisations that end up consolidated on FFH's BS, default on its debt due to a localised issue. It is entirely reasonable to talk about non-recourse debt. 2) Whether it is important for investors or clients may not be the point. It's likely to be important for ratings agencies.

Just occurred to me: the Blackberry convert ($500m) matured in Jan 2020. I wonder if it got repaid, or rolled. Guess we will know at the end of the month.

Another more minor point is I believe private investments are more capital intensive to hold (from an insurance regulation/rating POV) than public. EDIT: this would also apply to APR. I expect more.

Quick scan of 2018 AR does not give price paid, but they said they paid 6x ev/ebitda and 5x FCF. This deal values Dexterra at C$100m (using HN predeal price) and the release says it has no debt and generates $16.5m ebitda in 2019 and 23m in 2020. That suggests it has been sold for multiples of 6x and 4.3x. The release also says it has capex needs of only $3m and generates a lot of FCF, which is consistent with the FCF multiple claimed by FFH on acquisition. Conclusions: 1) FFH have not made money from multiple expansion, but they could have made (or lost) money by growing (or shrinking) ebitda. 2) Even if EBITDA has been flat, they could have taken a 20% dividend out of it each year.

Yes, agreed that it is good to have more visibility. I guess the downside is BV gets market to whatever the market's current mood is even more than it already does, but it's small fry.

Thank you for sharing that. It's nice to get an update on where the Carrillon assets are headed, and it's nice to see that FFH will be on the receiving end of dividends and might ultimately have a partner to whom it can sell its stake (if that is what FFH decides to do). One of the unfortunate aspects of FFH's growth is that it is hard to follow the progress of every asset because most of the acquisitions are not individually material to FFH. Without a creating 1,000 page annual report, they just cannot really report on how things are going. I am quite curious how things are going with some of the other smaller acquisitions of the past couple of years, notably Toys R Us and Churchill. But at least we now know a bit more about Carrillon. SJ Agreed, although: 1) I don’t see why they couldn’t have taken a dividend from Dexterra without merging it. 2) They seem to be getting about C$100m of value, based on Horizon North’s predeal share price. Can anyone remember what they paid? I’m not sure they’re surfacing much value here unless the merger blurb about growth and x-sell is true.

I wonder when the share price gets cheap enough to make buybacks a better option than premium growth? Obviously some of the share price fall is to do with falling equity holdings in things like Eurobank and Atlas. But those are big positions FFH can’t realistically add to. If they were comfortable with the value in them 40-50% higher, buybacks are very rational here. My guess is they will stick to premium growth. Also see SJ’s thread for why they may not be able to fund buybacks. Pity.

Hard disagree. There are pockets of "interesting". But the most obvious ones, financials and energy, have material risk. Good stocks are still selling at a premium. Booking.com is going to see revenue freefall this year to COVID, but it outperformed the indices today. This correction is not about COVID. What I think people are missing is that corrections are normal. Covid is not material for most companies. True. Life will return to normal in 12-18 months. But SPY was up 30% last year. The value of SPY didn't increase 30% in one year. There was enormous complacency built into valuations. Covid is just the trigger for a necessary correction. I raised a bit of cash today. Hoping to raise a bit more tomorrow. I am still expecting a few more pockets of opportunity. Agreed - but the key point is “pockets of interesting”. I wouldn’t be buying the S&P here, but there are some great opportunities around.

Um...that’s *everything*.

So my thinking was more to buy long dated, out of the money calls on individual stocks where I think the options will be well in the money before expiry. I was planning to move to cash, or worry about cost of volatility. Am I mad? Bear in mind it’s nearly two decades since I did even basic option maths so I’m quite likely asking dumb questions.

Why not open a fine bottle of red and have a glass? Tis the way of the warrior. I'd go for champagne. I do love red screens.

Shameful admission: I have never owned an option. However, in theory a sensible strategy is to be almost fully invested most of the time and to use long dated calls to "juice" upside when markets sell off hard. We are not there yet, but I want to start thinking about the latter part of this formula. If you have any options that you'd recommend for this purpose, or that you're watching, or if you have any (constructive!) advice, then I am all ears. Thanks in advance. P

The fact that BV has dropped a lot - check out the Eurobank and Atlas Holdings share prices. Now, those stocks are cheap so plenty of value has opened up. But it’s arguably in the holdings, not Fairfax. And that interest rates are below 1% all the way down the curve meaning getting a 10-15% ROE is a pipe-dream unless if the insurance markets just go gangbusters. Agreed. Although *arguably* one ought to be looking at the ROE/risk free rate spread when valuing a stock.

LNG. Feels like a replay of 2016, when I first bought.

The fact that BV has dropped a lot - check out the Eurobank and Atlas Holdings share prices. Now, those stocks are cheap so plenty of value has opened up. But it’s arguably in the holdings, not Fairfax.

I broadly agree. The share buyback doesn’t make me scratch my head because I always read that as a long term thing. Riverstone UK does a little - not sure why it’s better placed to grow with OMERS as a partner, which is what Prem says - but that negative is offset by my surprise at how much it’s worth and we have to consider the possibility that the motivation for the deal may simply have been to surface value and get the BV mark. But what does really piss me off is that Prem keeps banging on about how well capitalized the subs are while not mentioning that they had to squirt equity into some of them during the year. Just feels like a lie.

In fairness, he dedicates an entire page to how key metrics have compounded over the last decade for these companies and then says “shame on us” for missing the most important trend of that decade. I doubt he feels his job is to lay out the competitive advantages of companies he doesn’t own.

If they want to pay back the revolver in 2020 then I agree. But why would they? They’ve always talked about cash at the holdco in absolute terms, not net terms. My guess is they set up the big revolver for exactly this eventuality and they’re happy levering the holdco at the start of a hard market. Absent the Allied minority buy-in, which doesn’t have to happen soon, one could argue they’re really quite liquid.

You are correct, but I would add a bit of precision. It's not management that benefits, its FFH that benefits via the performance fee. That's might be trite, but I make that point because it is important to recognize where Prem's financial interest resides. It resides in the performance of FFH shares, not FFH India. I am certain that people are tired of me dredging up the ancient past, but this is nothing new. When FFH bought out ORH, we did not really have a fully independent management cadre or board of directors to ensure that ORH shareholders received full value in that buyback. Prem had access to a larger collection of ORH financial data than did minority shareholders, so we did not know at the time that he was effectively buying ORH at book value (although as Chairman of ORH, it is almost certain that Prem would have been aware of that). Okay, it mostly worked out. Most of us made good money on ORH, but I remain unconvinced that we received a fair price for our shares. The lesson here is that if there is a divergence between Prem's personal financial interest and your personal financial interest, you would be well advised to consider measures to ensure that your interests are well aligned with his. Do I need to dredge up Abitibi Bowater? It's basically the same conclusion. Understand where Prem's financial interests reside! SJ Sensible advice for most investments tbh!

SJ why do you think the holdco needs dividends from the less well-capitalised subs )Crum, Brit etc.)?