A.M. Best Assigns Rating to Fairfax Financial Holdings Ltd.'s Forthcoming Preferred Share Offering

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best Co. has assigned a debt rating of “bb+” to the forthcoming up to CAD 250 million five-year rate reset cumulative convertible preferred shares, Series K (Series K preferred shares) of Fairfax Financial Holdings Ltd. (Fairfax) (Toronto) FFH. The outlook assigned to the rating is stable. All remaining ratings of Fairfax are unchanged.

The Series K preferred shares will be issued in Canada under a prospectus supplement to Fairfax's short form base shelf prospectus dated December 10, 2010. The annual dividend rate will be set every five years and will be equal to the five-year Government of Canada bond rate in effect 30 days prior to the anniversary date of the initial issuance, plus 3.51%. The rate for the initial five-year period will be 5.00%. The proceeds will be used to retire outstanding debt, augment Fairfax's cash position and increase short-term investments and marketable securities held at the holding company and for general corporate purposes.

Beginning with the first five-year anniversary of the issuance, holders of the Series K preferred shares will have the right to convert any or all of their Series K preferred shares into an equal number of cumulative floating rate preferred shares, Series L (Series L preferred shares). The interest rate on the Series L preferred shares will set quarterly based on the then current 90-day Canadian Treasury Bill, plus 3.51%.

At year-end 2011, Fairfax's unadjusted debt-to-total capital ratio was calculated at 38.6%, when given partial equity credit for the preferred shares, the measure is 32.2%. Based on the gross proceeds of CAD 250 million, Fairfax's unadjusted debt-to-total capital ratio is less than 2% higher following the issuance of these preferred securities. These calculations include the debt of wholly owned subsidiaries, which are capable of servicing their own debt. The financial leverage and coverage ratios remain within A.M. Best's guidelines for Fairfax's current ratings and are expected to remain so over the near term.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “A.M. Best's Ratings & the Treatment of Debt”; “Equity Credit for Hybrid Securities”; and “Risk Management and the Rating Process for Insurance Companies.” Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

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