PrefBlog

Fairfax Financial Holdings Limited has announced:

that it has determined the fixed dividend rate on its Cumulative 5-Year Rate Reset Preferred Shares, Series C (“Series C Shares”) (TSX:FFH.PR.C) for the five years commencing January 1, 2015 and ending December 31, 2019, with the result that the quarterly dividends on the Series C Shares during that period will be paid at an annual rate equal to Cdn.$1.14450 per share.

Holders of Series C Shares have the right, at their option, to convert all or part of their Series C Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series D (the “Series D Shares”), effective December 31, 2014. The deadline for exercising this conversion privilege is 5:00 p.m. (Toronto time) on December 16, 2014.

The quarterly floating rate dividends on the Series D Shares will be paid at an annual rate, calculated for each quarter, of 3.15% over the annual yield on three-month Government of Canada treasury bills (calculated as set out in the prospectus supplement relating to the public offering of the Series C Shares dated September 29, 2009). The quarterly dividend amount in respect of the initial dividend period will be Cdn.$0.25212 per share, payable on March 31, 2015.

As provided in the share conditions of the Series C Shares, (i) if Fairfax determines that there would be fewer than 1,000,000 Series C Shares outstanding after December 31, 2014, all remaining Series C Shares will be automatically converted into Series D Shares on a one-for-one basis effective December 31, 2014; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series D Shares outstanding after December 31, 2014, no Series C Shares will be permitted to be converted into Series D Shares. There are currently 10,000,000 Series C Shares outstanding.

The Toronto Stock Exchange (“TSX”) has conditionally approved the listing of the Series D Shares effective upon conversion. Listing of the Series D Shares is subject to Fairfax fulfilling all the listing requirements of the TSX and, upon approval, the Series D Shares will be listed on the TSX under the trading symbol “FFH.PR.D”.

FFH.PR.C is a FixedReset, 5.75%+315, which commenced trading 2009-10-5 after being announced 2009-9-29.

From a 5.75% coupon to 4.578% is a big hit – a reduction in income of just over 20%.

The new rate of 4.578% implies that the five-year Canada was at 1.428% at time of measurement, significantly higher than 1.346%”used for TRP.PR.A. Very curious.

Using similar arguments to those made with respect to TRP.PR.A, I suggest that conversion to the FloatingReset issue is currently favoured, with a projected price on the FloatingReset of 25.06 compared to 24.78 for the FixedReset. However, any decision should be made at the last possible moment – which will be earlier than the company’s last possible moment of 5pm, December 16, 2014. Check with your broker to determine what their deadline is!

This entry was posted on Tuesday, December 2nd, 2014 at 11:35 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.