StubbleJumper Posted June 18, 2024 Posted June 18, 2024 On 6/18/2024 at 11:24 PM, 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/ Expand 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
glider3834 Posted June 19, 2024 Posted June 19, 2024 (edited) On 6/18/2024 at 11:24 PM, 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/ Expand 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, 2024 by glider3834
Crip1 Posted June 19, 2024 Posted June 19, 2024 On 6/18/2024 at 11:29 PM, 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 Expand 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
frommi Posted June 19, 2024 Posted June 19, 2024 Can someone explain to me why fairfax is taking on debt at all while at the same time investing in lower yielding bonds?
UK Posted June 19, 2024 Posted June 19, 2024 On 6/19/2024 at 11:32 AM, 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? Expand 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:)
TwoCitiesCapital Posted June 19, 2024 Posted June 19, 2024 On 6/19/2024 at 11:32 AM, 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? Expand 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.
StubbleJumper Posted June 19, 2024 Posted June 19, 2024 On 6/19/2024 at 11:32 AM, 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? Expand 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
UK Posted June 19, 2024 Posted June 19, 2024 (edited) On 6/19/2024 at 12:46 PM, 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 Expand 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, 2024 by UK
Hoodlum Posted June 19, 2024 Posted June 19, 2024 (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, 2024 by Hoodlum
MMM20 Posted June 19, 2024 Posted June 19, 2024 On 6/19/2024 at 1:36 PM, Hoodlum said: I was glad to see them drop the TRS Expand Wait, when did that happen?
gfp Posted June 19, 2024 Posted June 19, 2024 On 6/19/2024 at 1:44 PM, MMM20 said: Wait, when did that happen? Expand It didn’t. But a lot of people misread a press release.
MMM20 Posted June 19, 2024 Posted June 19, 2024 On 6/19/2024 at 1:49 PM, gfp said: It didn’t. But a lot of people misread a press release. Expand Thanks. I assume you are referring to the Ensign Energy TRS @Hoodlum.
Hoodlum Posted June 19, 2024 Posted June 19, 2024 (edited) On 6/19/2024 at 1:57 PM, MMM20 said: Thanks. I assume you are referring to the Ensign Energy TRS @Hoodlum. Expand Yes. Are we still holding any Fairfax swaps that could go up or down depending on share price? Edited June 19, 2024 by Hoodlum
hardcorevalue Posted June 19, 2024 Posted June 19, 2024 yes ffh swaps still in place (which makes sense to me)
petec Posted June 26, 2024 Posted June 26, 2024 On 6/19/2024 at 12:46 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 Expand 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.
Munger_Disciple Posted June 28, 2024 Posted June 28, 2024 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/
Parsad Posted June 29, 2024 Posted June 29, 2024 On 6/28/2024 at 4:44 PM, 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/ Expand That's wonderful! Pay it forward! Cheers!
StubbleJumper Posted June 29, 2024 Posted June 29, 2024 On 6/28/2024 at 4:44 PM, 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/ Expand 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
gfp Posted June 29, 2024 Posted June 29, 2024 On 6/29/2024 at 11:32 AM, 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 Expand it is Prem’s own (personal) money, although it follows a recent sale of Fairfax shares back to the company.
StubbleJumper Posted June 29, 2024 Posted June 29, 2024 On 6/29/2024 at 2:12 PM, gfp said: it is Prem’s own (personal) money, although it follows a recent sale of Fairfax shares back to the company. Expand 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
John Hjorth Posted June 29, 2024 Posted June 29, 2024 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?
gfp Posted June 29, 2024 Posted June 29, 2024 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).
Parsad Posted June 30, 2024 Posted June 30, 2024 On 6/29/2024 at 3:48 PM, John Hjorth said: So, @StubbleJumpers question above about if this is about Watsa funds or FFH funds hereby appear clearly justified, right? Expand 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!
MMM20 Posted June 30, 2024 Posted June 30, 2024 (edited) On 6/29/2024 at 3:48 PM, 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? Expand 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, 2024 by MMM20
StubbleJumper Posted June 30, 2024 Posted June 30, 2024 On 6/30/2024 at 12:15 PM, MMM20 said: 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. Expand Irrespective of the magnitude it's not really even an issue. FFH has a program of charitable donations and espouses the "doing good while doing well" approach. Donating to this sort of cause could easily fit into that program. My question was just basic curiosity. Is the Watsa family donating money outside of FFH's charitable initiative, or was this part of the charitable initiative? Both are fine, but if was FFH's money, I'd tend to prefer that the "credit" be attributable to FFH rather than the Watsa family. If it was Watsa family money, then Prem should definitely be applauded for having made the donation. SJ
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