OLDWICK, N.J.--(BUSINESS WIRE)--July 10, 2003--A.M. Best Co. has
assigned a "bb+" senior unsecured debt rating to Fairfax Financial
Holdings Ltd.'s (Fairfax)(NYSE: FFH)(TSX: FFH.TO)(Toronto) USD150
million (USD200 million if the over-allotment is exercised) 5%
convertible debentures due 2023.
The debentures are being issued under Rule 144A and are
convertible at a 42.8% premium above the closing price on July 8,
2003. The debentures are puttable to Fairfax at five-year intervals
beginning in 2008. Fairfax may redeem the debentures prior to 2008
should its shares exceed 137.9% of the conversion price for 20 trading
days in any consecutive 30 day trading period. Upon conversion,
maturity or redemption, the company may redeem the debentures with
cash, subordinate voting shares or a combination of cash and
subordinate voting shares. A.M. Best expects proceeds from the
debenture will be used to either repay existing debt or be invested at
the holding company in cash or marketable securities. A portion of the
proceeds may be used to purchase the company's outstanding shares.
This convertible debenture is one more step in management's
objective to maintain CAD500 million of cash and marketable securities
at the holding company. Two other successful transactions completed
over the past several weeks--the IPO of Northbridge and the 10-year
senior notes offered by a downstream subsidiary, Crum & Forster
Holdings, yielded available funds of approximately CAD470 million.
When added to the proceeds of this convertible debenture, Fairfax has
sufficient assets to cover its obligations in 2003 and still meet its
year-end cash target. In addition, Fairfax's cash obligations in 2004
are materially lower than those of 2003 and do not include any public
debt maturities. Additionally, the convertible debenture reflects
management's intent to reduce financial leverage as reflected by the
forced conversion feature included with the debenture. Leverage stood
at 40.7% at the end of first quarter 2003 and does not include cash
and short-term securities held by the holding company. Of material
significance, in the near term, is the somewhat reduced need to rely
on subsidiary dividends to cover holding company cash requirements
through 2004. This should allow for some--albeit not
excessive--flexibility in surplus building at the subsidiary level.
A.M. Best continues to evaluate its negative outlook on all of the
financial strength and debt ratings within the Fairfax organization.
Furthermore, A.M. Best continues to closely monitor underwriting
results, earnings and holding company leverage and cash flows for
continued progress in Fairfax's building of a positive track record
and financial and operating stability.
A.M. Best Co., established in 1899, is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit A.M. Best's Web site at www.ambest.com.