Fairfax stock positions

[Haryana]

17 hours ago, nwoodman said:

Very happy to be wrong as I think Eurobank would be wise to repurchase shares here.  Not to mention the conflict of capital return decisions that may be at odds with the other 77% of shareholders

With apologies for nitpicking,

I think you likely meant  67%. 

[nwoodman]

1 hour ago, Haryana said:

With apologies for nitpicking,

I think you likely meant  67%. 

Indeed I did, thanks

Edited November 29 by nwoodman

[nwoodman]

Estimating Seaspan’s % of the global fleet.  For the want of a better number I always figured 10% might be a material threshold
 

CURRENT POSITION (Q3 2024):
- Seaspan: 1,874,000 TEU
- Global Fleet: 27.5M TEU
- Current Market Share: 6.81%

FUTURE POSITION (Est. 2026-2027):
Seaspan Growth:
- Current: 1,874,000 TEU
- Newbuilds (36 vessels): ~450,000 TEU
- Future Seaspan Total: ~2,324,000 TEU

Global Fleet Growth Projection:
- Current: 27.5M TEU
- Industry orderbook: ~7.2M TEU (through 2026)
- Estimated scrapping: ~1.5M TEU
- Projected 2026 Global Fleet: ~33.2M TEU

Future Market Share Calculation:
2,324,000 TEU / 33,200,000 TEU = 7.0%

Key Context:
- Seaspan's growth is secured through firm orders
- Global fleet growth includes confirmed orderbook
- Position as largest independent owner will be maintained
- Share calculation considers both newbuild deliveries and vessel retirements
- Excludes any potential M&A activity or additional orders

 

Key Benefits at 10%:

Shipyard Pricing: Better newbuild pricing and priority slots

Financing: Improved terms and broader funding options

Operating Costs: Enhanced economies of scale

Charter Markets: Greater influence on charter rates

Industry Influence: Stronger voice in regulatory and industry matters

 

[nwoodman]

A Tradewinds article (attached), reporting on Q3, indicates that the five vessels sold to ONE were then leased directly to OOCL, difficult to determine if this falls within the ONESEA JV. It makes you wonder whether Atlas has maxed the balance sheet, especially with the other novations.  Time will tell.

 

“Key Financial Metrics:

• Revenue: Up 34.7% to $601.4M ("Revenue was up at $601.4m, versus $446.6m")
• Net Profit: Down to $130.6M ("net profit in the third quarter was $130.6m, down from $142.9m")
• Interest Costs: Up 86.5% ("financial costs rose, notably interest to $174.6m from $93.6m")

Strategic Moves:

1. August Vessel Transaction

• Ordered 6 x 13,000 TEU vessels
• "Five of these contracts were novated to ONE in September 2024"
• Subsequently chartered by ONE to OOCL on 15-year terms

2. June Newbuild Program

• "Four of these contracts were immediately novated to a customer"
• "13 of these contracts were thereafter novated to certain nominees and upon delivery, these 13 newbuilds will be chartered by the Company from such nominees under bareboat charters"

Operational Execution:

• "During the first nine months of the year, it took delivery of 23 newbuildings at a cost of $2.4bn"
• "As at 30 September, Seaspan had 36 vessels under construction, down from 40 at the end of 2023"

Strategic Implications:

1. Moving from pure ownership model to mixed approach
2. Financial pressure driving innovative structures
3. Maintaining operational presence while reducing capital intensity
4. Strategic relationship with ONE evolving (27.8% ownership)
5. ONESEA JV represents new direction in service provision

Conclusion: Seaspan are adapting to financial constraints while trying to maintain their market position, but the loss of the OOCL charter opportunity (through ONE) suggests they would prefer direct ownership when possible. This looks more like strategic adaptation to circumstances than a deliberate shift away from the ownership model.”

Seaspan sells five boxship newbuilding contracts to ONE as profit falls TradeWinds.pdf

Edited November 29 by nwoodman

[petec]

On 11/29/2024 at 10:57 PM, nwoodman said:

suggests they would prefer direct ownership when possible

 

It's a while since I looked closely at Atlas, but I used to own it and followed it closely, and the sense I had was that they always optimised for IRR and meeting customer needs rather than type of ownership. So it may well be that they just got a good IRR from this deal. 

 

I was always slightly sceptical about this because IRR is only relevant if you can immediately redeploy the capital.

[nwoodman]

2 hours ago, petec said:

 

It's a while since I looked closely at Atlas, but I used to own it and followed it closely, and the sense I had was that they always optimised for IRR and meeting customer needs rather than type of ownership. So it may well be that they just got a good IRR from this deal. 

 

I was always slightly sceptical about this because IRR is only relevant if you can immediately redeploy the capital.

Quite possibly, these guys have more under utilised IQ points than I have in aggregate. Some thoughts nonetheless:

 

1. 2x's interest coverage may be the lower bound for covenants. 3x's give them a shot at IG. I think they don't have a choice at the moment given higher for longer

2. This play is a small but important part the overall Fairfax portfolio. If rates rise then Atlas sucks but Fairfax rolls at higher yield. Rates fall then Atlas becomes very profitable.
3. Good chance that there will be an embedded buyout clause in the novations.

4. These guys are clever, hopefully Brian Bradstreet is in someway involved on the debt side and advising as part of the broader portfolio
5. The only head scratcher is why are paying divs at this stage in their growth

A rough cut on sensitivity:

 

CURRENT POSITION (Q3 2024):

• Interest Expense: $174.6M quarterly ($698.4M annualized)
• Operating Earnings: $334.6M quarterly ($1,338.4M annualized)
• Current Interest Coverage: 2.3x
• Total Borrowings: $10.39B
• Average Interest Rate: 6.66%

RATE SENSITIVITY:

Interest Rate Changes (Annual Impact): +100bps:

• Additional Interest: +$103.9M
• New Interest Coverage: 1.96x
• Coverage Decline: -14.8%

+50bps:

• Additional Interest: +$52M
• New Interest Coverage: 2.12x
• Coverage Decline: -7.8%

-50bps:

• Interest Savings: -$52M
• New Interest Coverage: 2.48x
• Coverage Improvement: +7.8%

-100bps:

• Interest Savings: -$103.9M
• New Interest Coverage: 2.69x
• Coverage Improvement: +17%

FAIRFAX PERSPECTIVE: At higher rates:

• Atlas interest burden increases
• Fairfax investment portfolio yields improve
• Net positive for Fairfax despite Atlas stress

At lower rates:

• Atlas profitability improves significantly
• Each 100bps = ~$104M annual impact
• Could accelerate path to investment grade

Edit: In terms of divs, Fairfax may also see this as the return of capital phase as opposed to return on capital.  Just spit balling.

Edited December 2 by nwoodman

[petec]

On 12/2/2024 at 10:43 AM, nwoodman said:

Quite possibly, these guys have more under utilised IQ points than I have in aggregate. Some thoughts nonetheless:

 

1. 2x's interest coverage may be the lower bound for covenants. 3x's give them a shot at IG. I think they don't have a choice at the moment given higher for longer

2. This play is a small but important part the overall Fairfax portfolio. If rates rise then Atlas sucks but Fairfax rolls at higher yield. Rates fall then Atlas becomes very profitable.
3. Good chance that there will be an embedded buyout clause in the novations.

4. These guys are clever, hopefully Brian Bradstreet is in someway involved on the debt side and advising as part of the broader portfolio
5. The only head scratcher is why are paying divs at this stage in their growth

A rough cut on sensitivity:

 

CURRENT POSITION (Q3 2024):

• Interest Expense: $174.6M quarterly ($698.4M annualized)
• Operating Earnings: $334.6M quarterly ($1,338.4M annualized)
• Current Interest Coverage: 2.3x
• Total Borrowings: $10.39B
• Average Interest Rate: 6.66%

RATE SENSITIVITY:

Interest Rate Changes (Annual Impact): +100bps:

• Additional Interest: +$103.9M
• New Interest Coverage: 1.96x
• Coverage Decline: -14.8%

+50bps:

• Additional Interest: +$52M
• New Interest Coverage: 2.12x
• Coverage Decline: -7.8%

-50bps:

• Interest Savings: -$52M
• New Interest Coverage: 2.48x
• Coverage Improvement: +7.8%

-100bps:

• Interest Savings: -$103.9M
• New Interest Coverage: 2.69x
• Coverage Improvement: +17%

FAIRFAX PERSPECTIVE: At higher rates:

• Atlas interest burden increases
• Fairfax investment portfolio yields improve
• Net positive for Fairfax despite Atlas stress

At lower rates:

• Atlas profitability improves significantly
• Each 100bps = ~$104M annual impact
• Could accelerate path to investment grade

Edit: In terms of divs, Fairfax may also see this as the return of capital phase as opposed to return on capital.  Just spit balling.

 

I think the fact they're paying dividends tells you they're not capital constrained - the people involved are too rational and long term to make any other decision, but I could be wrong. 

 

I agree they're super smart, but I do think they got caught with their pants down somewhat when rates rose and I wonder why they didn't fix more of their liabilities, especially given that their contracts are not inflation-linked which I have always thought was a huge weakness of their model/the industry.

 

I see it as a kind of levered option, but I like your point that FFH overall benefits more if rates rise than fall - I hadn't really considered this aspect of their Atlas investment.

 

 

[Hoodlum]

It looks like the global bond market has recognized the stability at Eurobank. 
 

https://www.naftemporiki.gr/english/1848770/eurobank-strong-interest-in-600-million-euro-senior-preferred-notes/
 

The transaction received tremendous level of interest from the onset which resulted in a final demand of 3.4 billion euros, i.e. an oversubscription close to 6 times, thus enabling Eurobank to raise 600 million euro at a reduced credit spread of 125bps compared to the initial 155bps indication level.
 

Upon new issue allocation, foreign investors’ participation accounted for approximately 93% of the subscribed amount of the book, with key participation from the United Kingdom and Ireland (40%), France (14%), Germany (13%) and Italy (9%). In terms of investor type, 68% were Fund Managers, 19% were Banks and Private Banks, 6% were Hedge Funds and 5% were Insurance and Pension Funds.

[Hoodlum]

Hellenic bank received a ratings upgrade on Friday.  The update also provided some comments surrounding their decision and the impact from the Eurobank acquisition. 
 

https://www.financialmirror.com/2024/12/15/hellenic-bank-upgraded-on-strong-capitalisation-eurobank-synergies/

 

the acquisition by Eurobank is seen as strategically positive for HB given the expected synergies, particularly between the two Cyprus-based banks.

 

Eurobank Cyprus’ corporate banking operations are complimentary to HB’s predominately retail banking franchise.

 

“We therefore anticipate the planned merger to produce a more diversified balance sheet and earnings profile, and help address strategic challenges previously faced on a standalone basis,” CI Ratings said.

 

“We expect overall asset quality to remain stable post-merger given Eurobank Cyprus’ sound risk profile,” the rating agency added.

Capitalisation metrics are strong, as improved profitability and low dividend payouts have meant strong internal capital generation.

 

Meanwhile, higher capitalisation in combination with the decline in the volume of NPLs has improved the bank’s extended NPL coverage; this offsets the modest LLR coverage ratio. Capitalisation is anticipated to remain strong after the planned merger in view of Eurobank Cyprus good capital ratios.

 

“Looking ahead, we anticipate the quality of the funding base of the combined entity to remain good, despite Eurobank Cyprus having a much smaller proportion of retail deposits.”

[wondering]

A little nothing-burger of a Fairfax investment ZoomerMedia is going private.  The market cap is 20M, FFH owns approx 15%.  The selling price is 167% over the pre-announcement price.  I have no idea if Fairfax made any money on this thing.  I think if they broke even, they can call it a success.

 

I feel embarrassed because after quickly reading the press release and some of the disclosures, I still can't figure out if Fairfax is part of the purchasing group or are they selling their shares too.

 

under Continuing Shareholders paragraph "The Equity Commitment Provider is an affiliate of Fairfax.."  What is an Equity Commitment Provider?  Are they provide the loans for the buyout?

 

ZoomerMedia-NC-final.pdf

[SafetyinNumbers]

2 hours ago, wondering said:

A little nothing-burger of a Fairfax investment ZoomerMedia is going private.  The market cap is 20M, FFH owns approx 15%.  The selling price is 167% over the pre-announcement price.  I have no idea if Fairfax made any money on this thing.  I think if they broke even, they can call it a success.

 

I feel embarrassed because after quickly reading the press release and some of the disclosures, I still can't figure out if Fairfax is part of the purchasing group or are they selling their shares too.

 

under Continuing Shareholders paragraph "The Equity Commitment Provider is an affiliate of Fairfax.."  What is an Equity Commitment Provider?  Are they provide the loans for the buyout?

 

ZoomerMedia-NC-final.pdf 3.1 MB · 8 downloads

Looks like Northbridge is putting up most of the cash for the buyout. I bought some at 7.5 cents when the deal was announced. Seemed like a low risk arb.