4 Responses to “September 3, 2020”

1. stusclues says:

   September 4, 2020 at 11:15 am

   I find it curious that the bond market is demanding such a high coupon (4.625%) on FFH’s new 2030 bond while the pref market is pricing in line with Jame’s indices. I calculate the FFH-specific seniority spread to be 271 bps (using implied volatility theory today and a GOC5 = 376 bps). This is much narrower than the seniority spread on Sep 2, implying that the bond market is demanding a ridiculous coupon. Since the bond market is always right, what does this say about the FFH prefs? Why are they not collapsing in price to line up with the bond issue?

2. peet says:

   September 4, 2020 at 3:03 pm

   Stusclues, I assume you’re referring to the April 29 US$ 650 million bond issue, so I’m not exactly clear on how it might tie in with spreads today. In any event, I’d hesitate to ascribe to it a spread demanded by “the bond market”. It was a private placement, we don’t know the terms of this issue, nor does it currently trade on the bond market. It was also issued under somewhat unique conditions, at least for Fairfax. By March 31 Fairfax had drawn $1,770 million on its $1,800 million revolving credit facility as a precaution to support its insurance and reinsurance companies, so the private placement was basically [$ 500 million ] to reduce this amount owing under the credit facility.

3. peet says:

   September 5, 2020 at 7:15 pm

   Update: in connection with the issuance of the April 2020 Notes, Fairfax entered into a Registration Rights Agreement with the initial purchasers, the practical effect of which would be to exchange the April notes with “Exchange Notes” identical to the initial notes but henceforth tradeable in the US market. Yesterday Fairfax filed a preliminary prospectus for such Exchange Notes [ accessible on EDGAR]

   So, to Stusclues’ query, at some point relatively soon these Exchange Notes should start trading and there will then be a “market” and we’ll have some data in connection with the then current spread.

4. stusclues says:

   September 6, 2020 at 9:34 am

   peet, I was reacting to a Sep 4th news release that I see now was indeed related to the exchange event for April notes. The exchange is going through. The “issue brief” on my broker news feed made it look like a new issue. I can see via FINRA that FFH bonds are trading at a substantially lower yield so there is better concurrence between the bond and pref market after all. Sometimes I need to slow down and take a breath 🙂