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Fairfax to raise another C$200 Million - preferreds this time


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Fairfax plans to raise $200-million

The Canadian Press

 

 

Tuesday, September 29, 2009

 

Toronto — Fairfax Financial Holdings Ltd. said Tuesday it plans to raise $200-million through an issue of preferred shares.

 

The Toronto-based financial management and insurance firm said it will issue eight million shares at $25 each to boost its cash position, retire debt and other purposes.

 

Holders of the series C preferred shares will be entitled to receive a cumulative quarterly fixed dividend yielding 5.75 per cent annually for the initial five year period ending Dec. 31, 2014. After that, the dividend rate will reset every five years at the five-year Government of Canada bond yield plus 3.15 per cent.

 

“Fairfax intends to use the net proceeds of the offering to augment its cash position, to increase short term investments and marketable securities held at the holding company level, to retire outstanding debt and other corporate obligations from time to time, and for general corporate purposes,” Fairfax said in a statement.

 

The issue is expected to close on or about Oct. 5.

 

 

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Anyone care to speculate what they will do with the money? I figure:

 

A) They continue to raise capital opportunistically because rates are low and there will be opportunities in the future

 

B) They plan on using the proceeds to retire the outstanding ORH preferreds

 

C) They have another mid-sized acquisition in mind

 

(I would guess that its either A or B)

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Anyone care to speculate what they will do with the money? I figure:

 

A) They continue to raise capital opportunistically because rates are low and there will be opportunities in the future

 

B) They plan on using the proceeds to retire the outstanding ORH preferreds

 

C) They have another mid-sized acquisition in mind

 

(I would guess that its either A or B)

 

 

I'd say that you're probably correct about (a) and (b).  Seems like a no-brainer for FFH to redeem the ORH preferreds that pay 8.125% by issuing an FFH preferred at 5.75%.  They may want to eliminate all of ORH's exchange-traded securities so that they can reduce their reporting/disclosure burden.

 

SJ

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If the economy takes off, then the extra cash goes into building out the business.

If the economy stays steady, the cash remains at a low interest rate and FFH can earn a profit investing it.

If the economy drops, the markets drop the interest rates stay low and FFH has extra cash for investing when things are low.

 

This makes $1.2 B that FFH has raised very recently.  I am wondering if they are simply taking advantage of this market rally to be ready in case there is a second wave.

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Guest misterstockwell

If Quantumonline is correct, there is a total of $100 million in ORH A & B preferreds. I hope they buy them in, for purely selfish reasons of course!  ;

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ORH already bought back some of their preferreds.

 

I think there are 1,167,163 outstanding of the fixed rate "A" series or $29,179,075 worth at a par value of $25 (and they are callable in 13 months at par)

 

It looks like there are 1,872,000 outstanding of the floating rate "B" series, or $46,800,000 worth at par (they are callable in thirteen months at $25.38 or slightly more than par)

 

This is a total of roughly $76 Million which they can call on October 20th of 2008. My guess is that they call both issues.

 

 

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ORH already bought back some of their preferreds.

 

I think there are 1,167,163 outstanding of the fixed rate "A" series or $29,179,075 worth at a par value of $25 (and they are callable in 13 months at par)

 

It looks like there are 1,872,000 outstanding of the floating rate "B" series, or $46,800,000 worth at par (they are callable in thirteen months at $25.38 or slightly more than par)

 

This is a total of roughly $76 Million which they can call on October 20th of 2008. My guess is that they call both issues.

 

 

 

Does anyone know if FFH can somehow retire these early?  Tender offer instead of call? 

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Here is the wording from the prospectus for the series A pfd. :

 

We may not redeem the series A preferred shares before October 20, 2010, except that we may redeem the series A preferred shares before that date at a redemption price of $26 per share, plus declared and unpaid dividends, if any, to the date of redemption, if we are required to submit to the holders of our common stock a proposal for any matter that requires, as a result of a change in Delaware law after the date of this prospectus supplement, for its validation or effectuation an affirmative vote of the holders of the series A preferred shares at the time outstanding, whether voting as a separate series or together with any other series or class of preferred stock as a single class.

 

So  does the takeover require the votes of pfd. holders? 

Can anyone decipher the above??

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Here is a cut and paste of the Prospectus Supplement.  http://www.sec.gov/Archives/edgar/data/1137048/000090956705001607/t18226e424b5.htm

 

I believe they are redeemable at $26. prior to Oct. 20, 2010.

 

Odyssey Re Holdings Corp.

8.125% Series A Preferred Shares

(Liquidation Preference $25 Per Share)

 

      Odyssey Re Holdings Corp. is offering 2,000,000 shares of its 8.125% series A preferred stock, par value $0.01 per share (the “series A preferred shares”).

      Upon liquidation, dissolution or winding-up, the holders of the series A preferred shares will be entitled to receive from our assets legally available for distribution to stockholders a liquidation preference of $25 per share, plus declared and unpaid dividends, if any, to the date fixed for distribution. Dividends on the series A preferred shares will be payable on a non-cumulative basis only when, as and if declared by our board of directors, quarterly in arrears on the twentieth day of January, April, July and October of each year, commencing on January 20, 2006, at a rate equal to 8.125% of the liquidation preference per annum (equivalent to $2.03125 per share).

      On and after October 20, 2010, we may redeem the series A preferred shares, in whole or in part, at any time, at a redemption price of $25 per share, plus declared and unpaid dividends, if any, to the date of redemption. We may not redeem the series A preferred shares before October 20, 2010, except that we may redeem the series A preferred shares before that date at a redemption price of $26 per share, plus declared and unpaid dividends, if any, to the date of redemption, if we are required to submit to the holders of our common stock a proposal for any matter that requires, as a result of a change in Delaware law after the date of this prospectus supplement, for its validation or effectuation an affirmative vote of the holders of the series A preferred shares at the time outstanding, whether voting as a separate series or together with any other series or class of preferred stock as a single class. The series A preferred shares have no stated maturity and will not be subject to any sinking fund or mandatory redemption and will not be convertible into any of our other securities or property.

      There is currently no public market for the series A preferred shares. We have applied to list the series A preferred shares on the New York Stock Exchange under the symbol “ORH PrA.” If the application is approved, trading in the series A preferred shares is expected to commence within 30 days after the initial delivery of the series A preferred shares. Our common stock is listed on the New York Stock Exchange under the symbol “ORH.” On October 13, 2005 the last reported sale price of our common stock on the NYSE was $24.95 per share.

      Concurrently with this offering of series A preferred shares, we are offering 2,000,000 shares of our floating rate series B preferred stock, par value $0.01 and liquidation preference $25 per share, which we refer to in this prospectus supplement as the “series B preferred shares.” The series B preferred shares will be offered pursuant to a separate prospectus supplement. Neither offering is contingent upon the other.

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Guest misterstockwell

Is anyone interested in buying the new FFH Series C preferred?  I am actually interested, as it pays a decent dividend, will adjust after 5 years, and I can hold it in Canadian dollars since my native USD will be worthless one day  :) 

 

This will trade on the Toronto exchange?

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Is anyone interested in buying the new FFH Series C preferred?  I am actually interested, as it pays a decent dividend, will adjust after 5 years, and I can hold it in Canadian dollars since my native USD will be worthless one day  :) 

 

This will trade on the Toronto exchange?

 

Nope, I will wait until there is a significant insurance event, pounce and tie in a higher yield. 

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ORH already bought back some of their preferreds.

 

I think there are 1,167,163 outstanding of the fixed rate "A" series or $29,179,075 worth at a par value of $25 (and they are callable in 13 months at par)

 

It looks like there are 1,872,000 outstanding of the floating rate "B" series, or $46,800,000 worth at par (they are callable in thirteen months at $25.38 or slightly more than par)

 

This is a total of roughly $76 Million which they can call on October 20th of 2008. My guess is that they call both issues.

 

 

[There are 2,000,000 shares of the Series A (fixed) outstanding and 1,167,163 shares of the Series B (floating) outstanding as of 6/30/09.  I agree that they call both issues. ]

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They have to pay a 4% premium to redeem those issues ($1. over the $25. face value) if they do it before Oct. 2010. 

 

ORH Series 'A' - 8.125% vs. New Issue 5.75% = 2.375% cost savings.  Why pay a 4% premium to face value to save 2.375% for one year (re: Series A, an even larger spread on Series 'B')?  The other change is the currency of the dividend (US$ to Cdn$).  If FFH felt they US$ was in a long term decline, why issue dividends in Cdn$? 

 

Generally, don't company's match dividend payments with the main currency of the majority of their revenue?

 

Has anyone contemplated that this is more geared towards NB than ORH? 

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They have to pay a 4% premium to redeem those issues ($1. over the $25. face value) if they do it before Oct. 2010. 

 

ORH Series 'A' - 8.125% vs. New Issue 5.75% = 2.375% cost savings.  Why pay a 4% premium to face value to save 2.375% for one year (re: Series A, an even larger spread on Series 'B')?  The other change is the currency of the dividend (US$ to Cdn$).  If FFH felt they US$ was in a long term decline, why issue dividends in Cdn$? 

 

Generally, don't company's match dividend payments with the main currency of the majority of their revenue?

 

Has anyone contemplated that this is more geared towards NB than ORH? 

 

 

Well, AFAIK if there are exchange listed preferreds, ORH must continue to regularly file documents at the SEC.  Once those preferreds are repurchased, the reporting burden would drop significantly (just NAICS, no SEC). The cost savings might be enough to justify such a move.  In particular, as you noted, a repurchase would save 2.375% less a 4% premium, for a net cost of 1.625%.  If there are $29m of ORH-A outstanding (as was suggested earlier in this thread) the reporting requirement could be eliminated for 2010 at about a $5m cost.  Does it cost $5m to develop, audit and publish quarterly filings?  Dunno.

 

SJ

 

 

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Well, AFAIK if there are exchange listed preferreds, ORH must continue to regularly file documents at the SEC.

 

Just rambling here, but i don't think they do have to continue to file ORH SEC filings, as the preferreds are now under the full faith and credit of FFH.

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The redemption price in October 2010 is $25.37, so the premium is really $0.63 or about 3%.  I believe they take out the ORH preferred's to clean up the structure.

 

Ummm, that is next year.  12 months away.  Raising $200m today, sit on the cash, pay the $11.5M in interest and redeem the ORH prefs in 12 months?  Or, go ahead and pay $26 today and get it over with, save on interest costs, save on filing costs but pay a 4% up front premium?  

Neither seem that likely to me but the later seems more likely. I will also add that since NB has no long term debt, than my earlier suggestion doesn't hold much water.  

Interesting that they are adding Cdn $ debt.

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Has anyone contemplated that this is more geared towards NB than ORH? 

 

FFHwatcher,

I mentioned this before but it doesnt seem to be on the radar for alot of people but the Flooding in Southern On this year is 1 in 100 year type of stuff.

Not trying to be alarmist but i would really be suprised (wont be the first time Im wrong) if this is not in some way material to the bottom line in the next Qs.

Having said that, FFH balance sheet can withstand almost anything (this was Katrina type disaster) but am interested to see. I cant go a day without running into someone who recvd a huge insurance cheque from this occurence.

 

Disclaimer: I am almost entirely on the sidelines at this point in terms of equities.

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Has anyone contemplated that this is more geared towards NB than ORH? 

 

FFHwatcher,

I mentioned this before but it doesnt seem to be on the radar for alot of people but the Flooding in Southern On this year is 1 in 100 year type of stuff.

Not trying to be alarmist but i would really be suprised (wont be the first time Im wrong) if this is not in some way material to the bottom line in the next Qs.

 

 

Flooding is often an exclusion on insurance contracts.  Doesn't mean that NB didn't take a hit, but I'd be surprised if it were a large hit.

 

SJ

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