Jump to content

Fairfax 2024


Recommended Posts

Fairfax is replacing $500M short term debt from Allied World into long term debt under Fairfax’s existing notes.  Fairfax’s is also taking out an additional $250M in debt, which I presume will be used to continue buying back shares. 
 

https://www.fairfax.ca/press-releases/fairfax-announces-pricing-of-senior-notes-offering-and-re-opening-of-6-000-senior-notes-due-2033-2024-06-18/

Link to comment
Share on other sites

2 minutes ago, Hoodlum said:

Fairfax is replacing $500M short term debt from Allied World into long term debt under Fairfax’s existing notes.  Fairfax’s is also taking out an additional $250M in debt, which I presume will be used to continue buying back shares. 
 

https://www.fairfax.ca/press-releases/fairfax-announces-pricing-of-senior-notes-offering-and-re-opening-of-6-000-senior-notes-due-2033-2024-06-18/

 

Interesting.  The holdco was tight on cash for most of 2023, but in theory the insurance subs should be swimming in cash during 2024 and could easily dividend considerable amounts to the holdco.  In that context, it raises an eyebrow that they are raising net cash of US$250m at this stage.  I would have liked to see that last June...

 

 

SJ

Link to comment
Share on other sites

2 hours ago, Hoodlum said:

Fairfax is replacing $500M short term debt from Allied World into long term debt under Fairfax’s existing notes.  Fairfax’s is also taking out an additional $250M in debt, which I presume will be used to continue buying back shares. 
 

https://www.fairfax.ca/press-releases/fairfax-announces-pricing-of-senior-notes-offering-and-re-opening-of-6-000-senior-notes-due-2033-2024-06-18/

if Fairfax holdco is issuing mostly 30 yr notes plus some 10 yr notes to repay Allied's US$500M debt due 2025 then it could potentially be capital contribution or inter-company loan, if cap contribution then my question is will Fairfax receive increased equity ownership in Allied? 

Edited by glider3834
Link to comment
Share on other sites

2 hours ago, StubbleJumper said:

 

Interesting.  The holdco was tight on cash for most of 2023, but in theory the insurance subs should be swimming in cash during 2024 and could easily dividend considerable amounts to the holdco.  In that context, it raises an eyebrow that they are raising net cash of US$250m at this stage.  I would have liked to see that last June...

 

 

SJ

The net is that it increases debt service by about $24M/year, a little over $1/share per year. The benefit of a pretty attractive interest rate for the next 30 years is substantial. 

 

Candidly, I was a little surprised to see this.

 

-Crip

Link to comment
Share on other sites

44 minutes ago, frommi said:

Can someone explain to me why fairfax is taking on debt at all while at the same time investing in lower yielding bonds? 

 

I think that lower yielding bonds mostly are being held at insurance subsidiares and this the just the way most insurance companies operates (majority of the float will be invested in fixed income) and also is constrained by regulations. Meanwhile, at the company holding level, FFH is financed by debt and equity, which I guess is still much more expensive than the debt FFH just issued. So we can discuss how much of debt is to much or either FFH should use none at all, but I think, up to a certain / safe level, it just make sense for them to borrow at some 6 or so per cent long term in order to pursue investment opportunities at 10 ir 15 per cent returns and it seems that even FFHs own shares currently provides such opportunity. At least this is my understanding, maybe somebody can correct it, if it is wrong:)

Link to comment
Share on other sites

1 hour ago, frommi said:

Can someone explain to me why fairfax is taking on debt at all while at the same time investing in lower yielding bonds? 

 

HoldCo isn't holding most of the bonds. That's the insurance subs which are required to.

 

HoldCo is issuing this debt, right? And it's HoldCo repurchasing shares.

Link to comment
Share on other sites

1 hour ago, frommi said:

Can someone explain to me why fairfax is taking on debt at all while at the same time investing in lower yielding bonds? 

 

The borrowing is occurring at the holdco level, while the bond investments are principally held in the insurance subs.  The subs must keep those bonds as part of the insurance reserves to pay indemnities to policy holders.

 

But, the question is a good question, and it's something that I mused about a bit yesterday.  It appears as if the hard market might be peaking and that premium growth might be abating.  That being the case, the insurance subs appear to have considerable excess capital that they could dividend up to the holdco.  I fully understood the objective of refinancing the existing Allied debt (~$500m), but I didn't quite grasp the objective and timing of tacking on the extra $250m for use by the holdco.  They needed that extra $250m last year when the subs were capital constrained, but it strikes me that the holdco's activities this year could be easily funded by dividends from the subs.

 

In any case, the part that raised my eyebrows is only the $250mm so it's not really all that material.  Better to borrow when you don't really need to than to wait until you are desperate!

 

 

SJ

Link to comment
Share on other sites

18 minutes ago, StubbleJumper said:

 

The borrowing is occurring at the holdco level, while the bond investments are principally held in the insurance subs.  The subs must keep those bonds as part of the insurance reserves to pay indemnities to policy holders.

 

But, the question is a good question, and it's something that I mused about a bit yesterday.  It appears as if the hard market might be peaking and that premium growth might be abating.  That being the case, the insurance subs appear to have considerable excess capital that they could dividend up to the holdco.  I fully understood the objective of refinancing the existing Allied debt (~$500m), but I didn't quite grasp the objective and timing of tacking on the extra $250m for use by the holdco.  They needed that extra $250m last year when the subs were capital constrained, but it strikes me that the holdco's activities this year could be easily funded by dividends from the subs.

 

In any case, the part that raised my eyebrows is only the $250mm so it's not really all that material.  Better to borrow when you don't really need to than to wait until you are desperate!

 

 

SJ

 

Maybe situation in the insurance market is still better than expected or could even further improve, depending on the expectations for (or results of) the upcoming hurricane season:)? El Nino, Gulf of Mexico is record hot etc.

 

Edited by UK
Link to comment
Share on other sites

I was just thinking that the extra $250M could be to help cover the share purchase from Prem.  Fairfax may want to keep their cash holdings high as we enter Hurricane season.  Fairfax also has the extra dividends available at the subs in case it is needed.  
 

Fairfax is just keeping all options available for flexibility depending on what opportunity presents itself.  I was glad to see them drop the TRS, as that has reduced one risk if we do have a catastrophic event. 

Edited by Hoodlum
Link to comment
Share on other sites

3 hours ago, MMM20 said:


Thanks. I assume you are referring to the Ensign Energy TRS @Hoodlum

Yes. Are we still holding any Fairfax swaps that could go up or down depending on share price?

Edited by Hoodlum
Link to comment
Share on other sites

On 6/19/2024 at 1:46 PM, StubbleJumper said:

but I didn't quite grasp the objective and timing of tacking on the extra $250m for use by the holdco.  They needed that extra $250m last year

 

Lots has changed in the last year. Inflation fears have subsided somewhat, and FFH has has ratings upgrades. I suspect issuing 30-year debt at 6% is primarily opportunistic - it is a great piece of financing and likely highly accretive to equity value, so when the opportunity arises you do it even if you don't have an immediate plan for the money. My hypothesis would be that this opportunity wasn't there last year.

 

Also FFH is bigger now, so all else being equal you'd expect debt to rise.

Link to comment
Share on other sites

18 hours ago, Munger_Disciple said:

 

 

It wasn't entirely clear to me when I read the story, did Prem donate $5m of the Watsa family's money, or did Prem donate $5m of Fairfax shareholders' money?

 

 

SJ

Link to comment
Share on other sites

2 hours ago, StubbleJumper said:

 

 

It wasn't entirely clear to me when I read the story, did Prem donate $5m of the Watsa family's money, or did Prem donate $5m of Fairfax shareholders' money?

 

 

SJ


it is Prem’s own (personal) money, although it follows a recent sale of Fairfax shares back to the company.  

Link to comment
Share on other sites

1 hour ago, gfp said:


it is Prem’s own (personal) money, although it follows a recent sale of Fairfax shares back to the company.  

 

Well, that's what the headline would suggest, but I was having trouble finding more detailed clarity in the article itself, and there's no press release on Fairfax's website.  In the article, I saw these two lines, one which would suggest it was Watsa family money and one which might suggest that it was Fairfax shareholder money:

 

First: 

 

Mr. Prem Watsa, founder and chairman of Fairfax Financial Holdings Ltd., has donated $5 million (approximately Rs 41 crore) to his alma mater, the Indian Institute of Technology Madras, to advance brain research.

 

And second:

 

Fairfax Financial Holdings, under Mr. Prem Watsa’s leadership, has pledged its support to this cutting-edge research and development initiative. In a press release on Tuesday, Mr. Prem Watsa stated, “We are pleased to support this work and wish them the very best to reach greater heights.”

 

 

SJ

Link to comment
Share on other sites

I think that is the gist - this $5 million donation is from Mr. Prem Watsa.  Also, Fairfax has pledged to support this cutting edge research (likely through smaller gifts).

Link to comment
Share on other sites

16 hours ago, John Hjorth said:

So, @StubbleJumpers question above about if this is about Watsa funds or FFH funds hereby appear clearly justified, right?

 

 

No, not really.  Do you want me to ask him and tell him that after all these years, shareholders still doubt his intentions and decision making?

 

I'm pretty sure it was Prem directly and neither Fairfax, nor Sixty-Three Foundation.  This research was always important to the Watsa Family, but it's become more important since Vinodh's illness and recovery.

 

Cheers!

Link to comment
Share on other sites

20 hours ago, John Hjorth said:

So, @StubbleJumpers question above about if this is about Watsa funds or FFH funds hereby appear clearly justified, right?

 

Now who's going to ask FFH IR about it?

 

Even if it’s from FFH, that’s like half a day of earnings, right? Maybe I’m too cynical, but that seems cheap enough for good PR in a important country for them. 

 

Edited by MMM20
Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...