Fairfax $150 million overnight convertibles talked to yield 4.5-5.0%, up 45-50%

By Ronda Fears

Nashville, July 8 - Fairfax Financial Holdings Ltd. launched $150 million of 20-year convertible senior subordinated debentures talked to yield 4.5% to 5.0% with a 45% to 50% initial conversion premium.

Banc of America Securities is lead manager of the overnight Rule 144A deal.

The issue, which converts into subordinate voting shares of Fairfax, will be non-callable for five years with a 100% premium threshold. There are puts in years five, 10 and 15.

Also, there is a 120% contingent conversion trigger.

The issue is expected to be rated Ba3 by Moody's Investors Service and BB by Standard & Poor's Corp.

There is a $40 million greenshoe available.

The deal is being sold on swap, as the company said it would use up to $20 million of proceeds to pay for subordinate voting shares purchased at the same time as the offering.

Fairfax shares closed Tuesday off 75c, or 0.5%, to $148.82.

Remaining proceeds will be used for general corporate purposes, including investing in cash, short-term investments and marketable securities and repurchasing or repaying debt. In addition, Fairfax said it may use some of the proceeds to buy back additional subordinate voting shares in the future.

In late May, Fairfax subsidiary Crum & Forster Holdings Corp. sold $300 million of 10.375% senior notes due June 15, 2013, with proceeds earmarked to repay parent debt, but those proceeds were put into escrow until Fairfax renegotiated its bank facility.

On June 30, Fairfax announced that proceeds of the Crum & Forster bond were released from escrow, per a renegotiated bank credit facility. The renegotiated bank agreement, extending to Dec. 31, 2005, provided revolving credit facilities of $474 million, declining to $337 million on Sept. 30, 2003, and to $269 million by Sept. 30, 2004. There are $240 million of letters of credit outstanding under the facility.

The facility is secured by the assets of Fairfax, including shares of subsidiaries Northbridge Financial Corp., Odyssey Re Holdings Corp. and Crum & Forster, and contains various restrictive covenants including a maximum net debt to equity ratio of 0.9 to 1. The facility was more flexible than Fairfax's previous facility in that it allows for borrowing by Northbridge and Odyssey Re.

Fairfax said at that time that it was also exploring the possibility of an additional bank facility specifically for the purpose of issuing letters of credit.

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