FBD Insurance is to purchase and cancel notes worth €70 million held by Canadian financial holding group Fairfax. If exercised, the notes would have given the Prem Watsa led group the option to acquire a 19 per cent stake in the Irish-listed insurer.
Toronto-listed Fairfax agreed a €70 million convertible bond deal with FBD back in 2015.The investment at the time strengthened FBD’s capital position ahead of Solvency II. Under the terms of the deal, Fairfax had the right to convert the bond into 8.2 million ordinary shares in FBD between September 23rd 2018 and September 23rd 2025 at an exercise price of € 8.50. This would have given it a 19 per cent stake in the Irish-listed insurer.
FBD said on Monday it would pay about €86 million cash for the bond, funded through a combination of existing cash resources and a new issue of subordinated notes. FBD will issue €50 million in subordinated notes which will be placed with institutional investors.
Fiona Muldoon, chief executive of FBD, said that the deal is a "great result" for its shareholders, as it avoids any dilution 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. We wish them well,” she said.
FBD said the deal would also reduce ongoing interest costs, “which over time should provide increased dividend potential for shareholders”.
Following the transaction, FBD Insurance’s solvency capital ratio will remain above its target range of 120 per cent to 140 per cent.