SafetyinNumbers

Should be one of the biggest deals Fairfax has ever done. I expect FIH to get partners including FFH to get the deal done. It will be interesting how much of the ~$5b is owned by Fairfax companies vs outside investors. My guess is more than half. I’m also curious how the accounting will be done. FIH usually marks to market its positions that are listed but FFH might be deemed to have significant influence or control.

Could also add the impact to BVPS as Viking calculated. Just need the effective shares outstanding at the end of 2024 and 2025. I don’t think the accretion to BVPS from buybacks at a discount are relevant.

Nice job! Different methodology for calculating intrinsic value than I use but they all end up in the same ball park.

GFR announces a big deal including a rights issue. If it gets done at C$6.74, then Fairfax likely has to write a cheque for ~$230m depending on oversubscribtion. https://www.greenfireres.com/news-releases/acquisition-of-connacher/

The TRS counterparty is a bank. Does that help? The banks are just renting out their balance sheet. They borrow at CORRA which is around 2.3% and lend secured to FFH at 3%. Seems like good business.

My guess is that if FFH wants to exit without buying the block it will be based on some sort of VWAP so it’s not done all at once and the bank is never at risk. You are correct that those shares would have to be absorbed by the market.

It’s more about understanding how a bank makes money. They have a capital base and then lend multiples of the capital base. That’s the leverage I’m referring to. It has nothing to do with TRS per se which are fully hedged. They only make money on the difference between the rate they lend at and the rate they borrow at.

Yes, banks use leverage to earn an acceptable ROE on their own capital. The banks are also hedged so you are correct they likely own the equivalent number of shares or have other counterparties that want short exposure.

They would owe the dividends to FFH on the TRS as well. It’s a lending business with almost no risk that probably gets the best capital treatment. It’s still good business once the leverage is factored in.

Higher is my guess. I think it’s hard to go below 1.2x BV given how active FFH is buying back stock so we’re at the lower end. It might take a hard market to go beyond 1.5x unless some quant funds jump back on board over time as BVPS starts growing again. What’s interesting is the optionality on how high it can go. The theory is higher lows and higher highs on the multiple over time.

They charge interest on the outstanding amount. My guess is FFH did the TRS in CAD given it’s with Canadian banks so are probably paying under 3% for the exposure. It’s just a form of leverage.

I did. I was working on a UBS prop desk helping manage a $300m Canadian L/S and risk arb book. I didn’t own Fairfax back then but I should have be as it really bucked the trend back then. It should this time too as they can buy the dip and boost forward returns but it’s hard to say for sure.

What’s that situation here? How much would the stock have to be down before they couldn’t come up with the cash to cover the margin? I might be naive but it seems improbable and my guess is that’s what they think too. They might have taken some off but I would be disappointed if that’s the case.

Negative feedback loop is useful when trying to buy back shares cheap.

Explained a few times already why I don’t think that’s the case but we’ll find out for sure when they report.