Fairfax Financial Holdings Ltd.’s Prem Watsa, who said this week that issuing stock was one of his last options for financing the purchase of Brit plc, opted days later to sell shares and guard his company’s credit rating.
Watsa, Fairfax’s chairman and chief executive officer, announced Thursday that BMO Capital Markets is leading a group of underwriters to buy C$650 million ($520 million) in subordinate voting shares. That will help fund the $1.88 billion takeover of Brit, a Lloyd’s of London insurer. The deal was announced Feb. 16.
On a Feb. 17 conference call, Watsa said that he had “many alternatives” for financing, such as offering debt and bringing in equity partners. Issuing new stock would be the last option, he said. The next day, Standard & Poor’s lowered its outlook on the firm to negative.
“The market has responded very favorably to the proposed acquisition,” Paul Rivett, president of Toronto-based Fairfax, said in an e-mailed statement. “We felt it was important to act expeditiously with a stock issue in order to quickly react to recent rating-agency actions.”
Watsa said earlier in the week that he would work to maintain Fairfax’s credit quality while seeking financing for the Brit deal. S&P, in issuing its negative outlook on Fairfax, maintained a rating of BBB-, the lowest of 10 investment-grade levels.
“The company has several options for restoring capital adequacy,” according to a Feb. 18 report from S&P. “There is execution risk with regard to any capital-management plan that it adopts.”
Watsa has been building Fairfax for decades, with bets on Irish banking, pet insurance and Zenith National Insurance Corp., the provider of workers’ compensation coverage in the U.S. He has said the Brit deal would add sales of policies to guard commercial clients against unique risks.
Fairfax said it intends to file a prospectus containing details of the share offering.
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