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Moody's upgrades Fairfax Financial's snr debt to Ba1


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And Crum gets upgraded too

 

http://finance.yahoo.com/marketupdate/inplay#ffh

 

 

2:50PM Fairfax Financial: Moody's upgrades Fairfax Financial's snr debt to Ba1; outlook positive (FFH) 339.40 -2.07 : Moody's upgraded the senior unsecured debt rating of Fairfax Financial Holdings Limited to Ba1 from Ba2; upgraded the insurance financial strength (IFS) ratings of Fairfax's subsidiary, Crum & Forster Holdings to Baa1 from Baa2 and Crum & Forster's senior debt rating to Ba1 from Ba2. In the same action, Moody's affirmed the IFS ratings of Odyssey Re Holdings Corp.'s (ORH) main operating subsidiaries at A3 and Odyssey's senior unsecured debt rating of Baa3 and preferred stock rating of Ba2. Moody's also upgraded the preferred stock rating of TIG Capital Trust I, another Fairfax subsidiary, to Ba3 from B1. This rating action follows Fairfax's announcement that it intends to repurchase the remaining 28% stake in Odyssey Re that it does not own. The upgrades of Fairfax and TIG reflect Fairfax's strengthening financial flexibility and the steady reduction in risk stemming from its run-off operations. The positive outlook reflects the company's long-term commitment to maintaining financial leverage at its current level and substantial holding company liquidity (in the range of $750 million to $1 billion). The upgrade of Crum & Forster reflects the improved financial profile and upgrade of Fairfax as Crum & Forster's ratings had previously been lower than their stand-alone credit profile because of the risks at Fairfax. The affirmation of Odyssey Re's ratings, with a stable outlook, reflects the rating agency's view that the company's underlying financial strength will not be materially altered by the Fairfax repurchase.

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When I think about some of the poor FFH holders who were crying about the dilution created from the ORH deal.

 

You get the crown jewel back, massive simplification of Fairfax financials and internal structure, new friends/supporters from the equity issue (see the article) and now a ratings upgrade due to the deal.

 

Oh yeah! $60 a share for Odyssey Re is really expensive. I mean 1.16 times June 30 book value (more like 1.09 now, but let's not tell them). I would much rather see a huge share buy-back. Buying this China insurer for over 3 times book was a much better deal. Anyway, now that we are stuck with this rotten deal, let's try to screw these minority shareholders as much as we can and let's threathen them to abandon the deal if they say a word. Maybe that we should also bribe the bankers doing the fair value work to ensure that they don't get a penny more. Then they can pay the income taxes in full on their capital gain. Ah, ah, ah...

 

I am glad it is not you guys leading Fairfax because it would be Sell, Sell, Sell combined with the sound of the guy that is falling from a bridge and also the sound of a train wreck.  >:(

 

Now that I have vented a bit. It looks like that Moody's may have received a target range from Prem for cash at holdco: "substantial holding company liquidity (in the range of $750 million to $1 billion)"

 

Cardboard

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breath Cardboard, breath.

 

Part of the reason that I sold out my ORH shares was because I'm happen for FFH to maximise the value in their books. I think FFH has got a long way to go and the better shape it gets into now then the bigger it will grow. Let the sub's kick in the cash and if FFH can;t find good use for it then I'm sure they can always buy shares back from the unhappy investors..

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I started the year 100% notional FFH, now I'm only 70% notional FFH but it's the same number of shares!  

 

Ultimately I think FFH will trade up to 2x book at some point -- barring that, at least 1.4x.

 

Already traded at 1.75x US GAAP in early 2007 -- and that's before significant improvements.  This is not what I think is a fair price, but rather what I think a cheery consensus will eventually pay.

 

 

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Already traded at 1.75x US GAAP in early 2007 -- and that's before significant improvements.  

That may have been part of the short sqeeze environment....

 

Probably right about that.  However, about that time MKL was over 2x book, I think even like 2.2x.  Even with a CR advantage of 9 points, that's only 6% after tax operating yield from underwriting which at 10x multiple is only worth 0.6x book.  So 2.2x less 0.6x is 1.6x -- which is less than 1.75x book but not much.

 

 

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