Fairfax Financial raises $300 million from direct placement; direct deals, convertibles popular

By Sheri Kasprzak

New York, Sept. 28 - Fairfax Financial Holdings Ltd. led another busy day for PIPEs Wednesday, announcing the upcoming settlement of a $300 million direct placement.

The Toronto-based insurance and reinsurance company will issue 1,843,318 shares at $162.75 each to institutional investors on Oct. 12.

The shares will be sold under the company's shelf registration.

The price per share for the deal is equal to the company's closing stock price on Tuesday.

On Wednesday, after the impending settlement was announced in the morning, the company's stock gained 3.1%, or $5.05, to close at $167.80.

"Fairfax is raising significant equity at this time with a view to bulletproofing its balance sheet and achieving the financial flexibility that has been its hallmark in the past," said chief executive officer Prem Watsa in a statement. "With the huge projected Hurricane Katrina losses for the industry, we believe the industry dynamics may well be good again. We believe raising this significant equity should continue to improve our ratings and de-lever our balance sheet. We continue to be focused on building shareholder value for our shareholders over the long term."

At the beginning of September, it was reported by CIBC World Markets analysts that Fairfax may incur $128 million in losses related to claims from Hurricane Katrina.

Watsa did not immediately return requests for additional comment by press time Wednesday.

Earlier this week, Fairfax was slapped with a subpoena seeking documents related to the company's securities, compensation for sales, trading volumes and share prices. The company is being investigated by the Securities and Exchange Commission to determine if it sold products that are not insurance-related in an effort to boost earnings.

For the six months ended June 30, 2005, the company's net earnings dropped to C$40.9 million from C$84.5 million for the same period a year ago.

Several companies may be in the same boat as Fairfax, one market source said on Wednesday, in that they need cash to recover from the losses sustained during Hurricane Katrina, but now may not be the best time to conduct a private placement.

"That's why you're seeing more [direct placements and convertibles]," said the sellsider, who was not familiar with the Fairfax offering. "[Issuers] need the money and this is a quick way to get it, especially when your stocks are getting hit. Direct deals are easier because you don't have to shop it around. Convertibles are bit more flexible than a straight stock-for-cash deal. I'd say for a while, you should expect to see more of these."

Nanogen raises $20 million

In another direct placement wrapped Wednesday, medical diagnostic test manufacturer Nangoen, Inc. settled a $19,992,000 deal.

The San Diego-based company sold 6.8 million shares at $2.94 each to institutional investors, who also received 1 million warrants.

The warrants are exercisable at $4.00 each for five years.

The shares were sold under Nanogen's shelf registration.

Proceeds from the offering will be used for acquisitions, working capital and general corporate purposes.

Seven Hills Partners LLC was the bookrunner for the offering, and Stonegate Securities Inc. was a placement agent.

"This financing will bolster our balance sheet as we prepare to launch unique solutions for the clinical, research and point-of-care markets for evaluating and diagnosing disease," said Howard Birndorf, the company's chief executive officer, in a statement. "The capital will help us proceed to the next level of growth and support the successful execution of our multi-product commercialization strategy."

Nanogen's stock closed down $0.13 to end at $3.07 Wednesday.

International Fuel wraps $6.5 million offering

Over in the energy sector, St. Louis-based International Fuel Technology Inc. completed a $6,494,050 private placement of 4,447,980 shares in a deal that was conducted from May through August.

The shares were sold at $1.46 each to a group of accredited investors.

The investors received warrants for 1,111,995 shares. Details on the warrants could not be determined by press time Wednesday.

After the deal was announced Wednesday morning, International Fuel's stock slipped 7.23%, or $0.17, to close at $2.18.

"This investment is a significant step for our company," said Jonathan Burst, the company's chief executive officer, in a statement. "We set out to raise $5 million and took in more due to the strong investor interest we received.

"The $6.5 million represents approximately two years of funding for IFT and will help expedite our commercialization efforts. Based on the current progress we are making, it is unlikely that the company will require any additional capital raise in the future. In addition, the cash on our balance sheet will allow us to contemplate alternatives to the over-the-counter bulletin board market."

Proceeds will be used for working capital.

Based in St. Louis, International Fuel Technology is a petroleum refining company.

Canadian energy offerings

Moving north of the border, several oil exploration companies announced their plans to conduct PIPEs Wednesday, led by a C$40 million offering from Calgary, Alta.-based Midnight Oil Exploration Ltd.

Midnight Oil plans to sell 10 million subscription receipts at C$4.00 each through a syndicate of underwriters led by GMP Securities Ltd. and Sprott Securities Inc.

The subscription receipts are exchangeable into common shares on a one-for-one basis once Midnight Oil completes its acquisition of oil and natural gas reserves on the Red Earth property in Alberta.

The underwriters have an over-allotment option for up to 2 million additional subscription receipts.

After announcing the deal early Wednesday afternoon, Midnight Oil's stock gained 5.58%, or C$0.24, to finish at C$4.54.

Another Calgary-based oil explorer, Petrobank Energy and Resources Ltd., priced a C$38.6 million stock deal.

The offering, set to close Oct. 20, includes up to 4 million shares at C$9.65 each.

Three million of the units will be placed through a syndicate of underwriters led by Haywood Securities Inc. The rest will be sold on a best-efforts basis.

The company plans to use some of the proceeds to redeem its subordinated notes due July 31, 2006. The rest will be used for general corporate purposes.

The company's stock slipped C$0.16 to close at C$10.14.

E4 Energy Inc., yet another Calgary oil exploration company, also announced a private placement Wednesday - this one for C$10,001,250.

The deal includes 2,632,000 non flow-through shares at C$1.90 each and 2,041,000 flow-through shares at C$2.45 each.

The offering will be placed through a syndicate of underwriters led by Canaccord Capital Corp.

Proceeds will be used to expand the company's capital program.

On Wednesday, E4's stock gained C$0.04 to close at C$1.99.

Oil prices got a boost on Wednesday, gaining $1.28 to close at $66.35 per barrel.

Despite a drop in oil prices on Tuesday, one market source in Canada said he feels there's still plenty of investor demand for oil offerings.

"Investors are still eager for them, so we'll be seeing quite a few in the coming weeks," he predicted. "Oil falls, it rises, that's what it does. But for the most part, there is a big demand."

On Tuesday, oil fell $0.75 to close at $65.07 per barrel.

Defiant arranges C$15 million deal

Elsewhere in Canadian PIPEs, Defiant Resources Corp. announced its plans to head to the private placement market with a C$15 million offering.

The Calgary-based mineral exploration company intends to sell 2,298,851 non flow-through shares at C$4.35 each and 892,858 flow-through shares at C$5.60 apiece.

Dundee Securities Corp. and Clarus Securities Inc. are the lead underwriters for the offering, which is expected to wrap on Oct. 13.

The proceeds will be used to expand Defiant's 2005 and 2006 capital program.

After the offering was announced Wednesday afternoon, the company's stock gained C$0.10 to close at C$4.65.

DrugMax stock rises

A day after completing a $51,104,340 private placement, DrugMax, Inc.'s stock made slight gains Wednesday.

The company's stock climbed $0.09 to finish at $1.40 Wednesday.

On Tuesday, when the deal was first announced, the company's stock gained 9.17%, or $0.11, to close at $1.31.

DrugMax sold units in two separate tranches at $1.1525 each for the first tranche and at $1.2625 each in the second tranche.

DrugMax is a Farmington, Conn.-based specialty pharmacy company.

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