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Fairfax Launches $275 Million Senior Notes Offering


Alekbaylee
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I think FFH just wants to clean up their capital structure and push out maturities.

 

They have the C&F and Odyssey Preferreds which are a bit expensive. Also I think they could, be trying to minimize some of the required reporting by calling some of the stuff from the subs. FFH seems to be awash with cash right now, so it is interesting. I think Prem cant turn down 10 year cash at 7.75% with inflation predictions in 5 or 6 years.

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Not a terribly bad idea infront of what could be a bad hurricane season.

$this amt would have taken care of their share of Katrina and they arent even close to what they would have been on the hook for prekatrina ie. they've exited certain lines etc.

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Wasn't the whole argument of issuing the 355$ shares to reach their A rating? How does issuing 275M$ notes going to help get their A rating?

 

BeerBaron

 

The $275M should increase their ability to pay claims if they put it in cash or marketable securities.  :)

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I think FFH just wants to clean up their capital structure and push out maturities.

 

They have the C&F and Odyssey Preferreds which are a bit expensive. Also I think they could, be trying to minimize some of the required reporting by calling some of the stuff from the subs. FFH seems to be awash with cash right now, so it is interesting. I think Prem cant turn down 10 year cash at 7.75% with inflation predictions in 5 or 6 years.

 

I'm a little disappointed FFH can't do better than 7.75%

 

cheers

Zorro

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I am surprised as well re rate of 7.75%.

 

Is Prem telling us what to expect in the next 10 years?

 

I was at the local credit union the other day to see what they can offer in fixed income (GIC's). Like all banks they are offering next to nothing in interest.

 

Normally, I would be interested in buying 10 year paper at 7.75%, except that I would not like to bet against Prem. What are others thoughts?

 

I own Odyssey Re Holdings Corp. 8.125% Pfd. Series A ...are others switching to this paper if ORH paper called in by FFH?

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I'm a little disappointed FFH can't do better than 7.75%

 

I'd be surprised too, luckily the notes are at 7.25%.  Additionally, we don't know if the notes will issue at a premium to par (which I would expect).  All in all, their 7 year notes are bouncing around a YTM of 6.5-7.0% yield now, so paying a 2-3% cut to issue these new 10 years bonds either in terms of higher rates and/or commissions is probably par for the course.  I hope the deal closes at a YTM <7.0%... I think they are good for it.

 

Biaggio,

 

I would be interested in buying 10 year paper at 7.75%, except that I would not like to bet against Prem. What are others thoughts?

 

The worst thing about modern finance is that people seem to have forgotten to purpose of capital markets.  We are not all just trading against each other with winners and losers on each side.  We are providing capital to businesses who will hopefully use that money for value creating activity.  Giving money to Prem via a loan is not him betting against you.  You are physically giving him your capital, and the he is going to try to do well by you with it.

 

The incentives of equity holders and bond holders aren't always aligned, that I agree, but you are hardly betting against Prem by buying the bonds, quite the opposite.

 

Sorry for the mini-rant... Goldman Sachs has turned some aspects and mentalities of our markets into a Casino, but if we convince ourselves that it's 100% of the market, we will make bad decisions and the economy will suffer.  Investing is not a zero sum game long term.

 

Ben

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" Giving money to Prem via a loan is not him betting against you.  You are physically giving him your capital, and the he is going to try to do well by you with it."

 

Thanks Ben, I agree. I am pulling for Prem to do well.

 

I was thinking that Prem was buying his umbrella on a sunny day, when price is good, instead of waiting to buy when it is actually raining when pricing will be dearer. I figured then that Prem felt that 7.25% rate was good which would mean that were in for much higher interest rate down the road (as a result of higher inflation) as noted above by Myth.

 

Will I regret locking up money for the next 10 years at 7.25%?

 

Especially with new issues I always try to think why they may be selling. I also consider who I am buying from. I agree the market should not be a casino, but it is the responsilbility of each of us to look after ourselves. If you re playing poker against Maverick is it not wise to recognize it? At the same time Ben I agree though that it is much healthier thinking the way you do.

 

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Thanks Biaggio, I understand your perspective better now.

 

Will I regret locking up money for the next 10 years at 7.25%?

 

I think that it is a reasonable investment to make.  I think Prem does (and needs to) value 'optionality' more than you or I.  He needs liquidity and thus you both may be getting a bargain.

 

I don't own any FFH bonds, but I've looked at them from time to time.

 

Ben

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