TEXT - Fitch affirms Fairfax Financial re-opening senior notes

Tue Jan 22, 2013 3:38pm EST

Jan 22 - Fitch Ratings has affirmed the existing 'BBB-' rating on Fairfax
Financial Holdings Limited's (Fairfax) 5.84% senior notes due Oct. 14, 2022.  

The notes affirmed include those issued on Jan. 21, 2013 under a CDN$250 million
re-opening of senior notes.  Those notes represent a further issuance of an 
original CDN$200 million issuance completed in October 2012, resulting in a 
total of CDN$450 million of such senior notes outstanding.

Fairfax intends to use the net proceeds of the offering to augment its cash 
position, increase short-term investments and marketable securities held at the 
holding company level, to retire outstanding debt and other corporate 
obligations from time to time, and for general corporate purposes.

Fairfax's financial leverage ratio (adjusted for equity credit and to exclude 
unrealized gains on fixed income investments) was 33.8% at Sept. 30, 2012, up 
slightly from 33.2% at Dec. 31, 2011.  Following the CDN$450 million total 
senior note issuance and fourth quarter 2012 repayment of a $200 million loan 
note issued by TIG Insurance Company, Fairfax's pro forma financial leverage 
ratio increases to approximately 35.6% at Sept. 30, 2012.  This level is just 
above Fitch's expected range of 20%-35%. Fitch expects Fairfax's financial 
leverage ratio to return to below 35% through normal shareholders' equity growth
and/or through additional debt repurchases.

Operating earnings-based interest and preferred dividend coverage (excluding net
gains and losses on investments) has been very low in recent years as operating 
earnings have declined with weaker underwriting results and high catastrophe 
losses.  Including holding company cash, operating earnings-based coverage has 
been better, averaging 6.5x from 2009 to 2011, with 5.1x through the first nine 
months of 2012.

Fairfax continues to maintain a sizable amount of holding company cash, 
short-term investments and marketable securities of approximately $1 billion at 
Sept. 30, 2012, which Fitch believes provides Fairfax a sufficient cushion for 
meeting potential subsidiary cash flow shortages and liquidity to service its 
debt. 

On Oct. 16, 2012, Fitch affirmed all of its ratings for Fairfax and its 
subsidiaries with a Stable Outlook. 

Fitch affirms the following rating:

 

Fairfax Financial Holdings Limited

--CDN$450 million 5.84% senior notes due Oct. 14, 2022 at 'BBB-'.

Fitch currently rates Fairfax and subsidiaries as follows:

 

Fairfax Financial Holdings Limited

--IDR 'BBB';
--Senior debt 'BBB-';
--$82 million 8.25% due Oct. 1, 2015 'BBB-';
--$48 million 7.75% due June 15, 2017 'BBB-';
--$144 million 7.375% due April 15, 2018 'BBB-';
--CDN$400 million 7.5% due Aug. 19, 2019 'BBB-';
--CDN$275 million 7.25% due June 22, 2020 'BBB-'.
--$500 million 5.8% due May 15, 2021 'BBB-';
--CDN$400 million 6.4% due May 25, 2021 'BBB-';
--$92 million 8.3% due April 15, 2026 'BBB-';
--$91 million 7.75% due July 15, 2037 'BBB-';
--CDN$250 million series C preferred shares 'BB';
--CDN$200 million series E preferred shares 'BB';
--CDN$250 million series G preferred shares 'BB';
--CDN$300 million series I preferred shares 'BB';
--CDN$230 million series K preferred shares 'BB'. 

Fairfax, Inc.
--IDR 'BBB'. 

Crum & Forster Holdings Corp.
--IDR 'BBB';

Crum & Forster Insurance Group: 
Crum and Forster Insurance Company 
Crum & Forster Indemnity Company 
The North River Insurance Company 
United States Fire Insurance Company
--Insurer Financial Strength (IFS) 'A-'. 

First Mercury Insurance Company
--IFS 'A-'.

Northbridge Financial Insurance Group: 
Federated Insurance Company of Canada
Northbridge Commercial Insurance Corporation
Northbridge General Insurance Corporation
Northbridge Indemnity Insurance Corporation
Northbridge Personal Insurance Corporation 
Zenith Insurance Company (Canada)
--IFS 'A-'. 

Odyssey Re Holdings Corp. 
--IDR 'BBB';
--$50 million series A unsecured due March 15, 2021 'BBB-';
--$50 million series B unsecured due March 15, 2016 'BBB-';
--$40 million series C unsecured due Dec. 15, 2021 'BBB-';
--$183 million 7.65% due Nov. 1, 2013 'BBB-';
--$125 million 6.875% due May 1, 2015 'BBB-'. 

Odyssey Reinsurance Company
--IFS 'A-'. 

Zenith National Insurance Corp.
--IDR 'BBB'. 

Zenith Insurance Company 
ZNAT Insurance Company
--IFS 'A-'.