Mondegreen Posted January 23, 2018 Share Posted January 23, 2018 Westaim Corporation owns stakes in two underlying companies - HIIG (a speciality insurer), and Arena Finance (an asset manager). Their investment in HIIG is currently held at book value but could easily trade at a higher multiple in better markets. They also hold Arena finance at the book value of the capital Arena manages for them. This is very conservative as it does not consider the optionality granted by Westaim's general partner status which allows them to earn management/performance fees on the external capital managed by Arena. Fairfax has also invested in/with Westaim so I was slightly surprised not to find it on here already. A nice summary, blatantly stolen from spike945's VIC article here: https://www.valueinvestorsclub.com/idea/WESTAIM_CORP/140976 Simpler to say that trading below book value of just under $3 today I think Westaim is at least a fair price for good businesses with very interesting growth optionality, run by managers with decent track records. If HIIG gets its hard market and Arena continues to grow AUM, the company should be worth north of $4/share. I think there’s a good chance that both segments compound value at a decent rate from current levels, and we have the free option that Westaim’s management finds new opportunities to invest in going forward. Keubiko also wrote a great article on Westaim here (apologies for the paywall): https://seekingalpha.com/article/3490046-westaim-heads-win-tails-win Thanks very much and I would appreciate your input, Mondegreen Link to comment Share on other sites More sharing options...
Cigarbutt Posted January 23, 2018 Share Posted January 23, 2018 Thanks for the post/links. It made me move the file more towards the top. Arena is out of my league but will try to look into it. I find this is a kind of business where you have to rely a lot on the CEO and on the track record (which appears strong). There is a lot to say about the insurance arm. The Jevco deal was opportunistic at both the entry and exit points. Jevco was the crown jewel in the Kingsway portfolio of subs and Westaim paid a very decent price given financial pressure on the seller. HIIG is very interesting. It may be a situation where the earning power and compounding potential is masked by the context of its formation. There was a significant issue with the CEO (S. Way) around 2008 concerning an option back-dating probe, but Mr. Way's track record at HCC otherwise was otherwise very impressive. He built HCC over a +/- 30 year-period. HCC grew organically and through acquisitions and became a franchise that usually warranted a significant premium to book value. Mr. Way is leading HIIG and started the business by acquiring less than stellar assets but my understanding is that the idea is to simply acquire a conduit, "clean" the assets and management and grow after. Here's an interesting link describing the CEO vision/strategy for HIIG (2011). www.propertycasualty360.com/2011/06/17/picky-hiig-seeks-unadvertised-specials Link to comment Share on other sites More sharing options...
TBW Posted January 23, 2018 Share Posted January 23, 2018 I own and have written about it for clients. It's very cheap imo. Would add that aum at the hedge fund could be approaching 1bil if they accept all of Ffh investment. That should start to kick up a lot of cash to hc soon. Management has a very good track record in capital allocation. Twice they have bought large stakes in WED at net net prices Link to comment Share on other sites More sharing options...
netnet Posted January 23, 2018 Share Posted January 23, 2018 I own and have written about it for clients. It's very cheap imo. Would add that aum at the hedge fund could be approaching 1bil if they accept all of Ffh investment. That should start to kick up a lot of cash to hc soon. Management has a very good track record in capital allocation. Twice they have bought large stakes in WED at net net prices (Not to be lazy, meaning I'm being lazy here and not looking it up myself.) Have there been any insiders buying recently? Link to comment Share on other sites More sharing options...
TBW Posted January 23, 2018 Share Posted January 23, 2018 Daniel Zwirn, who runs the Arena division, bought 150k shares recently at 2.95. It is part of Zwirn's contract that requires him to purchase a certain amount of shares when he gets paid bonuses for the first couple years of his contract. So this may be part of that deal. Another instance was board member Peter Puccetti bought 3.6mil worth of shares after the FFH deal was announced. Subsequently he resigned from the board in August, not sure why. Link to comment Share on other sites More sharing options...
petec Posted February 20, 2018 Share Posted February 20, 2018 I notice that the Investor Day presentation says Arena investors has $530m of committed AUM. Of this $125m is from Fairfax and the wording implies that the other $375m from Fairfax is not included and nothing has been invested yet. Anyone have any idea why? I thought it got invested as the preferred share tranches were taken but maybe it is just committed as of those dates. Link to comment Share on other sites More sharing options...
Mondegreen Posted February 21, 2018 Author Share Posted February 21, 2018 Hi petec, From the news release (20170403): Fairfax has also agreed to invest up to US$500 million in investments sourced by Westaim’s affiliate, Arena Investors, LP (“Arena Investors”). Fairfax’s commitment to invest an initial US$125 million with Arena Investors will be triggered by the drawdown by Westaim of the first tranche of C$50 million of Preferred Securities. Subject to the satisfaction of certain conditions (including Westaim’s compliance with the indenture governing the Preferred Securities), Fairfax may invest an additional US$125 million with Arena Investors upon the next C$25 million drawdown of Preferred Securities by Westaim, and an additional US$250 million upon the final $25 million drawdown of Preferred Securities by Westaim. From the Q3 Filing: On June 2, 2017, the Company closed the sale to Fairfax of 5,000,000 Preferred Securities for C$50 million, and has discretion until January 1, 2018 to require Fairfax to purchase all or part of the remaining 5,000,000 Preferred Securities. The sale of the first C$50 million preferred securities would explain the release of the first US$125 million, however I can't see any further release suggesting that they closed the sale of either of the remaining two tranches, which I believe would prevent them from accessing the remaining US$375 million. January 1, 2018 has obviously passed so I assume they elected not to force Fairfax into the purchase. I guess there will be an update when the Q4 results are released. Thanks, Mondegreen Link to comment Share on other sites More sharing options...
petec Posted February 21, 2018 Share Posted February 21, 2018 Mondegreen - I can't see a press release about the second two tranches either, but I have read somewhere that they were exercised and the cash Westaim received was put to work in Arena Finance pending acquisition opportunities. There is certainly a big incentive for Westaim to exercise the second two tranches given the spread (they pay c.5% and receive c.12% when the money is invested at Arena Finance) and the inflows to Arena Investors that they trigger. However, I think the wording is clear that the vesting of the tranches triggers Fairfax's commitment to invest more AUM at Arena, rather than the investment itself. I assume this means that Arena can call the committed money as and when it finds opportunities. My guess is the tranches vested and Fairfax has $500m committed, but not yet invested. Link to comment Share on other sites More sharing options...
Mondegreen Posted February 27, 2018 Author Share Posted February 27, 2018 Added some more today at US$2.34, about 3% above what I believe to be a conservative book value. Link to comment Share on other sites More sharing options...
Mondegreen Posted April 3, 2018 Author Share Posted April 3, 2018 On June 2, 2017, the Company closed an initial subscription by Fairfax of C$50,000 of Preferred Securities (the “Fairfax Financing”). The proceeds raised from the Fairfax Financing were used by Westaim to make interest bearing loans to the Arena Group (see note 4). The Company had discretion until January 1, 2018 to require Fairfax to purchase all or part of the remaining 5,000,000 Preferred Securities, and had exercised its discretion not to do so. From page 61 of the Annual report - Will take a more in depth look this weekend Link to comment Share on other sites More sharing options...
petec Posted April 4, 2018 Share Posted April 4, 2018 On June 2, 2017, the Company closed an initial subscription by Fairfax of C$50,000 of Preferred Securities (the “Fairfax Financing”). The proceeds raised from the Fairfax Financing were used by Westaim to make interest bearing loans to the Arena Group (see note 4). The Company had discretion until January 1, 2018 to require Fairfax to purchase all or part of the remaining 5,000,000 Preferred Securities, and had exercised its discretion not to do so. From page 61 of the Annual report - Will take a more in depth look this weekend Yes, I assumed as much from the value given for the Westaim investment in Prem's annual letter. I suspect Westaim know Fairfax are keen for more of these deals and would rather go back and ask for more when they have something to do with the money. Prem still referred to Fairfax's right to invest up to $500m in debt sourced by Arena. I originally thought this value rose with each tranche of prefs to a maximum of $500m. Maybe I was wrong. Link to comment Share on other sites More sharing options...
Mondegreen Posted May 2, 2018 Author Share Posted May 2, 2018 Interesting links regarding Westaim. January 2015 - Toby Shute - Manual of Ideas: https://www.valuewalk.com/wp-content/uploads/2015/02/the-manual-of-ideas_toby-shute_2015-01.pdf March 2018 - Steve Vafier https://medium.com/@svafier/the-westaim-corporation-526ea5820801 April 2018 - Westaim press release https://westaim.com/wp-content/uploads/Westaim-Press-Release-April-16-2018.pdf May 2018 - Arquitos 2018 Q1 report - I am not sure I am allowed to post this but it is available via Reddit - Security Analysis Link to comment Share on other sites More sharing options...
Philbert77 Posted September 29, 2018 Share Posted September 29, 2018 So I was really hoping to hear something materialize in regards to this announcement: "Toronto, Ontario – April 16, 2018 – The Westaim Corporation (“Westaim” or the “Company”) (TSXV: “WED”) announces that, in view of the ongoing insurance industry consolidation activity and the receipt by Westaim and Houston International Insurance Group, Ltd. (“HIIG”) of several unsolicited enquiries, Westaim and HIIG may consider opportunities to enhance the growth and value of HIIG." I thought we'd hear about either a divestiture or a acquisition but it has now been 5 months and nothing has happened. Does anyone know anything further or have some info that i have missed? Link to comment Share on other sites More sharing options...
Steven B Posted October 4, 2018 Share Posted October 4, 2018 Good question. Was wondering same; apparently the offers didn't have their "funding secured".... Link to comment Share on other sites More sharing options...
Mondegreen Posted November 22, 2018 Author Share Posted November 22, 2018 Interview with Arena CEO: https://www.bloomberg.com/news/videos/2018-08-15/arena-investors-ceo-sees-numerous-triggers-for-next-credit-crisis-video Link to comment Share on other sites More sharing options...
Mondegreen Posted January 2, 2019 Author Share Posted January 2, 2019 Bit slow on this one, but Chris DeMuth Jr. submitted Westaim to SA as his 2019 top pick: https://seekingalpha.com/article/4229626-2019-top-pick-westaim Mondegreen Link to comment Share on other sites More sharing options...
Gamecock-YT Posted January 3, 2019 Share Posted January 3, 2019 I've looked at this a few times, it's certainly cheap. I just can't get comfortable with Arena. Link to comment Share on other sites More sharing options...
LightWhale Posted January 3, 2019 Share Posted January 3, 2019 I've looked at this a few times, it's certainly cheap. I just can't get comfortable with Arena. Would you mind being more specific? Link to comment Share on other sites More sharing options...
Steven B Posted February 13, 2019 Share Posted February 13, 2019 Not sure what Gamecock is referring to but bottom line Arena is a black box. I'm pretty sure the loan portfolio will perform well but can't have much more conviction than that. I own Westaim for the record, but keep this point in mind when I'm thinking how big a position I want to make it. Link to comment Share on other sites More sharing options...
LightWhale Posted February 14, 2019 Share Posted February 14, 2019 Not sure what Gamecock is referring to but bottom line Arena is a black box. I'm pretty sure the loan portfolio will perform well but can't have much more conviction than that. I own Westaim for the record, but keep this point in mind when I'm thinking how big a position I want to make it. Which info are you missing that would demystify Arena? Link to comment Share on other sites More sharing options...
Steven B Posted February 14, 2019 Share Posted February 14, 2019 Sorry that came out wrong. Guess what I'm saying is I have no idea about the loan quality except from the very limited data in the filings. looks good but can't say for sure. Link to comment Share on other sites More sharing options...
LightWhale Posted February 15, 2019 Share Posted February 15, 2019 I see your point now. But going over the subtleties of each loan would doubtfully helped form a better investment thesis. Even within Arena there are no more than a handful of people who do that. And we can never do it when investing in banks, of any size. However there are various indications which provide a partial safety net: previous results of DBZ, current results of Arena, the investment by Fairfax, ownership structure and incentives, AUM growth, loan portfolio diversification, the financial literacy of Delaney,MacDonald and Kittel, and so on. Link to comment Share on other sites More sharing options...
Steven B Posted February 15, 2019 Share Posted February 15, 2019 Your points are all valid. There are very good reasons to assume that we're in good hands. Link to comment Share on other sites More sharing options...
doc75 Posted March 14, 2019 Share Posted March 14, 2019 There was a huge volume spike a couple days back that seems to have cleared out some overhang on WED. I wonder how much of the drop from $3.20 to $2.40 in late 2018 was due to speculative money making an exit after the "unsolicited enquiries" they announced last spring did not materialize. This is definitely a bit of a black-box bet-on-the-jockey type situation, but the market really isn't giving them much credit at all at a 15-20% discount to book. Link to comment Share on other sites More sharing options...
doc75 Posted March 28, 2019 Share Posted March 28, 2019 Q4 results came out yesterday. A very good quarter IMO, particularly given the state of the markets. The shareholder's letter is now posted on Sedar (preface to the annual report) and is worth a read. Link to comment Share on other sites More sharing options...
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