bluedevil

To FFH's credit, they have been very clear that the believe Fairfax India is undervalued, so if they are able to unlock value down the road, i think hard to say shareholders have not been warned. For example, Prem has been pretty clear that he thinks BIAL is worth significantly more than what they have it marked for and that it will be reflected when it IPOs. I do not think a FFH takeover is in the cards any time soon, even if they wanted to do it. Fairfax India was started for a simple reason -- FFH is limited in how much equity it can put to work in India by regulators and rating agencies, so this was a way to leverage the large opportunity set they saw -- part ownership, and earn fees from rest. One question I have. The entire premise of FFH's step up in investment in India was Modi, who they believed would have a long tenure. But the COVID delta outbreak seems to have really hurt him. If he is not re-elected or his party is diminished, not sure where that leaves the global thesis.

Read Greg Miller columns on TradeWinds. Liners are getting such ridiculous rates on containers right now that they are desperate to get their hands on ships. Desperate. This has lead them to sign ships that normally operate in spot market for healthy 4-5 year terms so that they can get their hands on them and enjoy bumper profits now, even if they have to give a bit back on back end. This has given a huge boost to some of Atlas’s competitors that had spot fleets to basically go from spot to contracted. I think this is why Danaos as surged in price so much. The craziness of the market has definitely benefited and made stronger some of atlas’s competitors, even more so than atlas because they had more of their fleet exposed to spot.

Seaspan is reportedly close to another large order — this time for 20 ships at 7,000 TEU, at cost of 1.52 billion. https://splash247.com/seaspan-closes-in-on-20-boxship-order-in-china/

Two items of interest on ATCO: 1 - shipping rates continue to go skyward. This is obviously good for ATCO in terms of locking in its older ships on spot duty to 4-5 year deals. Rates are remarkably 4x last year. Seaspan has about 30 ships coming up for re-hire next year that will be re-chartered in this environment. https://seekingalpha.com/news/3703500-containership-charter-rates-top-records-8500-teu-charters-jump-4x-yy I worry though that this is going to fill coffers at a lot of Seaspan's competitors for the next 4-5 years and repair a lot of balance sheets that were more exposed to spot market and make it harder for Seaspan to be the consolidator in the industry and increase competition for ships in the medium term. 2 - In much more unambiguously bad news, this WSJ journal article states that "The order tally [for newbuilds] has been so strong that some yards have stopped giving quotes for new vessels and are trying to renegotiate existing orders for more than 20 ships as the price of steel plates used to build vessels has doubled since the end of 2020, according to people involved in those deals." Given Seaspan's newbuilds at end of last year, I think by definition Seaspan is likely getting a lot of pressure to re-cut deals. I would have though the yards would be sophisticated enough to hedge exposure to steel input costs, but the volatility has been crazy. Would be a true shame if Seaspan can't get these deals to hold. https://www.wsj.com/articles/ship-orders-surge-as-carriers-rush-to-add-capacity-11623179052?mod=markets_featst_pos3 Perhaps this is why the share price has gone sideways while charter rates have skyrocketed.

Lightning strikes twice! It particularly makes sense because they hold the debenture. They can still keep big upside exposure if BB is acquired, but have no real risk of losing money. I think that has been the plan since the original debenture was put in place but prices never got high enough to sell off the common equity position.

Sokol was given at least 1 million shares of Atlas around when he took on Chairman role. May have received further since then. Parsad, I agree with your view on Atlas. It has been fun to watch the progress that has been made since Sokol took over -- the company has systematically improved every aspect of its business in that time frame - board, management, safety; financing; counterparty risk; and so on. I own shares separately, but also happy that FFH is a 40% shareholder. It seems to me the market has not given the company sufficient credit for the progress. The post-pandemic runup in prices and the newbuilds have essentially locked in a very large sum of future cash flow and greatly mitigated the big risks the company had -- potential revenue drop as most charters were going to run off in 2022-2024 and were going to be exposed to market rates; and large concentration with a couple of customers. It seems to me there's a lot of momentum now. The company has 12 b in contracted cash flow; the counterparties are stronger; the company has scale and good operating management, and we have a potential call option in terms of Sokol growing a business in an area where he has a tremendous record - power.

On the Q1 conference call yesterday, Bing was specific about some of the re-chartering opportunities currently available in the market. Noting that the have 10 more 4250 ships coming off charter this year, and another 30 next year, he noted they are fixing 4250 for durations of five years at $27k per day (see below). These were the ships that they essentially had on the spot market last year, presumably because of less desire on the part of the liners to charter these older, smaller ships for longer periods. He said they expect to contract these out by the end of the year. APR also won two contracts recently. ...for example, for 4,250, currently, what we've been signing is between three to five years. At five years at the rate about $27,000 per day. So this is what the rates we've been signing and also the duration. One of the questions you might ask is that, OK, you might probably haven't seen a huge spike in the Q1 revenue in consideration of the current market rate. But really, what we have been -- our approach has been really taking a long-term approach in the sense that if you compare a 5-year $27,000 per day the contract versus a two year or three year, $30,000 or $32,000 per day. You will see a short-term -- will see a short-term spike on the revenue. But after one or two years, your vessel will be for uncertainty versus what we have taken is for a longer period of time. So we are actually seeing the next three, four, five years a very stable cash flow. And also on a total cash flow basis, for example, if looking at 4,250 on $27,000 a day, you get close to $40 million of contracted cash flow. So overall, I think for us, we're taking the current benefit over a stable, sustainable period of time, that is also consistent with our long-term cash -- long-term contract business model.

Link to results: Fairfax Financial Holdings Limited: Financial Results for the First Quarter Toronto Stock Exchange:FFH (globenewswire.com)

Q1 results are out. The total TRS position on Fairfax's own shares has grown to nearly 2 million shares: Net gains on long equity exposures of $1,028.5 million was primarily comprised of unrealized appreciation of common stocks and long equity total return swaps, including unrealized gains with respect to swaps on 1,620,936 Fairfax subordinate voting shares with an original notional amount of $577.6 million (Cdn$740.3 million) or approximately $356.36 (Cdn$456.71) per share. Currently the company holds long equity total return swaps on 1,964,155 Fairfax subordinate voting shares with an original notional amount of $732.5 million (Cdn$935.0 million) or approximately $372.96 (Cdn$476.03) per share.

I can’t see this full article, but this suggests Seaspan is considering another order for 20 7k TEU ships. https://www.tradewindsnews.com/containerships/seaspan-corp-mulls-extending-containership-order-spree-by-another-1-46bn/2-1-1002287

Xerxes, A few thoughts on potential Seaspan moats: 1 - I believe having an organization that is geared toward patient capital allocation is a strategic advantage over other ship companies. It requires the right incentives and focus and that is what Sokol has brought. The first thing he did after he came in was go after the old incentives that management had to grow revenue / dividend at expense of profitability. He deleveraged to create more opportunity to take advantage of good times (he is on record as saying this was the prior management's biggest failing). It is also the reason he bought APR - to give capital another outlet in times when rates of return are not adequate in shipping. To the extent the other shipping companies do not share this discipline and flexibility, that is a major advantage for Seaspan. Similar to a disciplined underwriting culture in insurance. 2 - They have scale that other shipowners do not have. They have pro forma 113 ships over 8500 TEU. They have IT, seafarer training, ship engineering, etc. etc. that their scale can support that smaller operators cannot support -- particularly the smaller operators that lend out a handful of ships. This allows them to provide more to customers than other companies. And the platforms allow them to add ships without much additional infrastructure. I would note that Seaspan appears to be where the liners have turned for this big splurge on newbuilds. Yes, others have announced deals but it certainly appears Seaspan has gotten a disproportionate share. Seaspan does not appear to be doing this by offering low rates. Based on what was disclosed, the return seems attractive ("very high single digits unlevered"), for contracts that can be levered given the certain, contractual cash flows. In other words, the recent activity provides market evidence that Seaspan is giving liner customers something that other companies are having trouble replicating.

Most interesting nugget in today's conference call for me: For recent new builds, they are spending CapEx of 3.7 billion, while locking in revenue of 5.9 billion during the charter terms. Of course, they also get to keep the boats at the end of the charters. Seems like attractive returns. They also stated on the call that all of these new builds are satisfying their hurdle rate of very high unlevered single digits on equity, and high teens double digit with leverage.

There can't be a debate that Fairfax's stock has performed very poorly in the last decade - that's an objective fact. But question is will it be a good investment going forward for the next decade? I think it has a pretty good shot. I thought this year's letter was detailed and informative. (If I have one concern it is that Prem seems unwilling/unable to discuss mistakes. It would seem a helpful practice to avoid making them again.) And I love Viking's analogy of a tanker turning around -- I think that's right. Good core performance has been obscured/hurt by BIG mistakes (shorting; deflation swaps; concentrated bets on high risk investments) that have wiped out a lot of capital and left the overall company treading water. Stop the diversions and we start to swim forward. Looking forward, here is what I see: (1) Six very high quality, growing insurance companies that generate 18-billion in profitable float. (2) A number of insurance companies in the developing world -- India (we own 76% of Digit as soon as Gov't allows from convertible securities!); Middle East; LatAm; Asia; and South Africa -- that have long, secular growth runways in front of them. (3) A investment operation that faces no artificial restraints -- can focus on the long-term; can go anywhere in the world; growth or value; public or private or venture; and so on. The operation is structured as a platform with many different people on the team. Those that grow capital over time take on a more important role; those that fail to take on less of a role. (4) No capital lost to shorting or acquisitions or the financial strain that comes from bad bets on them. (5) Excess cash going to strengthen financial position (agree 100% with Parsad's observation that FFH should not use debt!!) and then buy back shares. It seems like the company a pretty clear path to compounding book value per share at say 10% a year for the next 5-10 years. There's no magic or homeruns required. Just keep the tanker on the new path! Would love to hear from people who view the future differently for FFH and the reasons why. Potential risks I see to FFH's book value compounding by 10% a year for the next decade: Investing stinks: Maybe, but I think that what has created the real problems has been the macro and shorting misadventures. Even making some mistakes on security selection they can do fine. Where they have gotten in trouble in the last 10 years was underperformance of their picks; being wrong on shorts; and being wrong on deflation swaps. They are lucky interest rates went down (a macro call they got right), or else the problems would have been worse. But they seem to have extricated themselves from the problem activities. Tech disruption of their UW subs. I don't know enough to handicap this. But they have a front row seat with Digit and Ki to learn the lessons. Interest rates stay low and Fairfax keeps UW float in cash, which produces negative real returns. My thought is that if interest rates stay where they are, then the "hard market" should really be a new normal to make up for it.

That all makes sense to me. If you look at the charts (thanks for pointing them out!), the prices start surging higher in November. Seaspan announced one newbuild deal in December (presumably negotiations started before surge), but that was a unique case. 18 year charters and liner has obligation to buy the ships at the end of the lease term, so very little economic risk for Seaspan and a bit of a unique bucket. Seaspan started really putting the chips on the table in early Feb, when rates were and had been very high for a few weeks. Bing’s messaging had been clear in past that they have set return criteria and new builds did not meet it and they were looking only at second hands, so that clearly changed. The fact that liners are taking the other side of the trade suggests they are concerned prices may not get better in the years ahead. Why else lock into new builds now when price is so high? That should give us a chance to strike extensions.

It is an interview transcript on Seeking Alpha. Link below. 2 used ships on 2 year charters acquired in October 2020. https://www.google.com/amp/s/seekingalpha.com/amp/article/4399640-containership-update-insights-from-6-bagger-danaos-corp-podcast-transcript