Hoodlum Posted June 18 Share Posted June 18 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 More sharing options...
StubbleJumper Posted June 18 Share Posted June 18 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 More sharing options...
glider3834 Posted June 19 Share Posted June 19 (edited) 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 June 19 by glider3834 Link to comment Share on other sites More sharing options...
Crip1 Posted June 19 Share Posted June 19 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 More sharing options...
frommi Posted June 19 Share Posted June 19 Can someone explain to me why fairfax is taking on debt at all while at the same time investing in lower yielding bonds? Link to comment Share on other sites More sharing options...
UK Posted June 19 Share Posted June 19 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 More sharing options...
TwoCitiesCapital Posted June 19 Share Posted June 19 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 More sharing options...
StubbleJumper Posted June 19 Share Posted June 19 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 More sharing options...
UK Posted June 19 Share Posted June 19 (edited) 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 June 19 by UK Link to comment Share on other sites More sharing options...
Hoodlum Posted June 19 Share Posted June 19 (edited) 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 June 19 by Hoodlum Link to comment Share on other sites More sharing options...
MMM20 Posted June 19 Share Posted June 19 7 minutes ago, Hoodlum said: I was glad to see them drop the TRS Wait, when did that happen? Link to comment Share on other sites More sharing options...
gfp Posted June 19 Share Posted June 19 4 minutes ago, MMM20 said: Wait, when did that happen? It didn’t. But a lot of people misread a press release. Link to comment Share on other sites More sharing options...
MMM20 Posted June 19 Share Posted June 19 7 minutes ago, gfp said: It didn’t. But a lot of people misread a press release. Thanks. I assume you are referring to the Ensign Energy TRS @Hoodlum. Link to comment Share on other sites More sharing options...
Hoodlum Posted June 19 Share Posted June 19 (edited) 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 June 19 by Hoodlum Link to comment Share on other sites More sharing options...
hardcorevalue Posted June 19 Share Posted June 19 yes ffh swaps still in place (which makes sense to me) Link to comment Share on other sites More sharing options...
petec Posted June 26 Share Posted June 26 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 More sharing options...
Munger_Disciple Posted June 28 Share Posted June 28 Prem donates $5mm to IIT Madras for brain research: https://acr.iitm.ac.in/iitm_in_news/mr-prem-watsa-donates-5-million-to-iit-madras-for-brain-research-advancement/ Link to comment Share on other sites More sharing options...
Parsad Posted June 29 Share Posted June 29 15 hours ago, Munger_Disciple said: Prem donates $5mm to IIT Madras for brain research: https://acr.iitm.ac.in/iitm_in_news/mr-prem-watsa-donates-5-million-to-iit-madras-for-brain-research-advancement/ That's wonderful! Pay it forward! Cheers! Link to comment Share on other sites More sharing options...
StubbleJumper Posted June 29 Share Posted June 29 18 hours ago, Munger_Disciple said: Prem donates $5mm to IIT Madras for brain research: https://acr.iitm.ac.in/iitm_in_news/mr-prem-watsa-donates-5-million-to-iit-madras-for-brain-research-advancement/ 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 More sharing options...
gfp Posted June 29 Share Posted June 29 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 More sharing options...
StubbleJumper Posted June 29 Share Posted June 29 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 More sharing options...
John Hjorth Posted June 29 Share Posted June 29 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? Link to comment Share on other sites More sharing options...
gfp Posted June 29 Share Posted June 29 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 More sharing options...
Parsad Posted June 30 Share Posted June 30 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 More sharing options...
MMM20 Posted June 30 Share Posted June 30 (edited) 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 June 30 by MMM20 Link to comment Share on other sites More sharing options...
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