Fairfax 2020

[petec]

I enjoyed Prem's clarity on the topic of how much they could invest in equities at the AGM:

Q: How high could you take that percentage of the portfolio for equity exposure?

A: We have selected about that, you know, what we have today and you can always trade something that we may not - we like a lot, but we like something even better higher quality. So we've done that and selectively but situation at the, will that be like but yes so that's where we are right now on our equity portfolio.

 

If I had to take a stab at interpreting that, it likely means they will NOT be increasing equity allocation and will be doing relative value trades with the existing portfolio.

There' still going to be meat on the bone for them in fixed income which is GREAT! But definitely not the outcome we would've envisioned from the "financial ark" that Fairfax was setting itself up to be when it was hedged.

Agreed.

On a separate note with oil at -$37 those deflation swaps might actually be worth something. 

[mcliu]

https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Pricing-of-Senior-Notes-Offering/default.aspx

US$650M 10Y 4.625%

[StubbleJumper]

https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Pricing-of-Senior-Notes-Offering/default.aspx

US$650M 10Y 4.625%

That is excellent.  With the disruption in financial markets, I had anticipated that they would not be able to float debt at a reasonable rate.  However, this rate is perfectly fine and the amount is only $100m less than what I thought they might need.

About a month ago, I listed a half dozen possible elements of a "successful" year for FFH in the context of the recent turmoil.  This is one of them.  A double-digit increase in Net earned with a mid-90s CR was another. 

Good to see!

SJ


SJ

[beerbaron]

https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Pricing-of-Senior-Notes-Offering/default.aspx

US$650M 10Y 4.625%

That is excellent.  With the disruption in financial markets, I had anticipated that they would not be able to float debt at a reasonable rate.  However, this rate is perfectly fine and the amount is only $100m less than what I thought they might need.

About a month ago, I listed a half dozen possible elements of a "successful" year for FFH in the context of the recent turmoil.  This is one of them.  A double-digit increase in Net earned with a mid-90s CR was another. 

Good to see!

SJ


SJ

Don't celebrate yet, the notes will be offered but there might be no takers at the proposed rate.

BeerBaron

[StubbleJumper]

https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Pricing-of-Senior-Notes-Offering/default.aspx

US$650M 10Y 4.625%

That is excellent.  With the disruption in financial markets, I had anticipated that they would not be able to float debt at a reasonable rate.  However, this rate is perfectly fine and the amount is only $100m less than what I thought they might need.

About a month ago, I listed a half dozen possible elements of a "successful" year for FFH in the context of the recent turmoil.  This is one of them.  A double-digit increase in Net earned with a mid-90s CR was another. 

Good to see!

SJ


SJ

Don't celebrate yet, the notes will be offered but there might be no takers at the proposed rate.

BeerBaron

I thought that it was a private placement, meaning that it's a done deal.  Is there something specific that makes you understand something else?

SJ

[beerbaron]

You are right, it seems the financing is secured. At first glance I thought  they were going to offer the notes to a bunch of bankers.

BeerBaron

[StubbleJumper]

You are right, it seems the financing is secured. At first glance I thought  they were going to offer the notes to a bunch of bankers.

BeerBaron

But, you are right that it will feel more secure when they issue a second press release in a week or so saying that the deal has been transacted (usually there are two press releases for these things?).


SJ

[beerbaron]

Yeah, the closing date is in a week so in a week we can celebrate.

BeerBaron

[petec]

The biggest thing this does is release the risk of breaching the covenant on the revolver. Good news. I had a feeling this was coming - Prem made a pointed comment at the AGM about having bond market access.

[Cigarbutt]

Lately, there has been great demand to meet rising supply of investment-grade debt securities, especially with the newly erected backstops and FFH did well to wait a bit for the dust to settle.
It's interesting to compare to their last June 2019 500M CDN debt issue (unaudited and some adjustments because of the CDN USD differential):
June 2019 issue= 10-yr risk-free=1.53% + IG spread=2.38% + FFH-specific spread=0.33%   =)  4.24%
April 2020 issue= 10-yr risk-free=0.61% + IG spread=3.26% + FFH-specific spread=0.78%   =)  4.65%
By waiting a few days (since the "peak" CV vertigo on March 23), the IG spread has come down by 0.61% and i would bet that the FFH-specific spread has come down also.

There are many potential perspectives on this but they recently mentioned that they used part of the funds obtained on the revolver to buy corporate debt and now they are paying back the revolver using funds obtained while issuing Baa3 debt.
https://www.moodys.com/research/Moodys-rates-Fairfax-Financials-senior-notes-Baa3--PR_1000002674