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 G (“Series G Shares”) (TSX:FFH.PR.G) for the five years commencing October 1, 2015 and ending September 30, 2020. The fixed quarterly dividends on the Series G Shares during that period will be paid at an annual rate of 3.318% (Cdn.$0.207375 per share per quarter).

Holders of Series G Shares have the right, at their option, exercisable not later than 5:00pm (Toronto time) on September 15, 2015, to convert all or part of their Series G Shares, on a one-for-one basis, into Cumulative Floating Rate Preferred Shares, Series H (the “Series H Shares”), effective September 30, 2015. The quarterly floating rate dividends on the Series H Shares will be paid at an annual rate, calculated for each quarter, of 2.56% over the annual yield on three month Government of Canada treasury bills. The actual quarterly dividend rate in respect of the October 1, 2015 to December 30, 2015 dividend period for the Series H Shares will be 0.731987% (2.936% on an annualized basis) and the dividend for such dividend period, if and when declared, will be Cdn.$0.18300 per share, payable on December 30, 2015.

Holders of Series G Shares are not required to elect to convert all or any part of their Series G Shares into Series H Shares. A holder of Series G Shares who does not so elect will (subject to the next paragraph) retain their Series G Shares.

As provided in the share conditions of the Series G Shares, (i) if Fairfax determines that there would be fewer than 1,000,000 Series G Shares outstanding after September 30, 2015, all remaining Series G Shares will be automatically converted into Series H Shares on a one-for-one basis effective September 30, 2015; and (ii) if Fairfax determines that there would be fewer than 1,000,000 Series H Shares outstanding after September 30, 2015, no Series G Shares will be permitted to be converted into Series H Shares. There are currently 10,000,000 Series G Shares outstanding.

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

Fairfax is a holding company which, through its subsidiaries, is engaged in property and casualty insurance and reinsurance and investment management.

FFH.PR.G is a FixedReset with a spread of 256bp over five-year Canadas, which commenced trading July 28, 2010 after being announced July 20, 2010. The original coupon was 5.00%, so the reset rate of 3.318% represents a decline of 34%. Hey, by recent 40%+ standards, that looks good!

As noted in the press release, holders have the option to convert into FFH.PR.H, a FloatingReset, and this option must be exercised prior to 5pm, September 15 before vanishing until the next reset date in 2020. Recent market conditions have been highly unfavourable for FloatingResets and it is likely that I will recommend against conversion. However, conditions can change dramatically and rapidly and I will wait until September 10 to make a more formal recommendation.

Note that the September 15 notification date is for notification of the company, and brokers will generally have an internal deadline a day or two prior to this … so if you’re planning to wait until the last minute, contact your broker and find out precisely when the last minute will be!