FBD to purchase and cancel notes worth €70 million held by Fairfax

FBD Insurance has reached agreement to purchase and cancel the €70 million 7% convertible notes currently held by Fairfax Financial Holdings Limited for approximately €86 million in cash.

The transaction will be funded through a combination of existing cash resources and a new issue of subordinated notes, a spokesperson for FBD said, while the purchase of the notes is subject to certain conditions, including any required regulatory approvals.

As part of the transaction, FBD Insurance is proposing to issue €50 million worth of new callable dated deferrable subordinated notes due 2028.

Background

In 2015, FBD Insurance issued the original notes to Fairfax, to strengthen FBD’s capital standing and position it for future growth.

The notes held by Fairfax carry a 7% coupon and are convertible into ordinary shares in FBD at a conversion price of €8.50 per share at any time between September 23, 2018, and September 23, 2025, at the option of the holder.

A mandatory conversion would occur if the 30-day volume weighted average price of FBD shares exceeds €8.50 per share for 180 days from September 23, 2018. As of this morning (Monday, October 1), FBD’s share price was at €10.30.

On conversion, 8,235,294 new FBD shares would be issued to Fairfax.

Rationale

The consideration for purchase of the Fairfax notes represents a discount of approximately 3% to the six-month volume weighted average price as at September 28, 2018, the last business day prior to this announcement.

According to FBD, the transaction will have a number of benefits for shareholders.

These will include:
  • Existing shareholders will not suffer any dilution;
  • It will optimise and simplify FBD’s capital structure; and
  • It is expected to reduce ongoing interest costs, which over time should provide increased dividend potential for shareholders.

As at June 30, 2018, FBD had net assets of €280.4 million and recorded the notes as a €53.3 million liability and €18.2 million in equity.

Following completion of the transaction, on an unaudited pro-forma basis as at June 30, 2018, FBD would have net assets of €247.6 million.

Commenting on the transaction, Fiona Muldoon, CEO of FBD, said:“This transaction is a great result for our loyal shareholders.

It avoids any dilution of their existing shareholdings and ensures that FBD continues to maintain a very strong capital position.

“Fairfax’s investment in 2015 was a meaningful endorsement of our business when we needed it and they have been a fantastic partner.”