FBD Insurance has announced it will pay €86m to buy back a €70m bond (loan) that it secured three years ago from Fairfax Financial Holdings, a Canadian investment group. FBD originally secured the €70m bond, which carries an annual interest rate of 7%, from Fairfax in 2015 when the insurer needed capital injection to meet Solvency II regulations.

However, the bond carried an option to be converted into shares in FBD, which, if exercised, would have seen Fairfax own a 19% stake in FBD Insurance, as well as diluting the shareholdings of existing shareholders such as Farmer Business Developments.

FBD says buying back the bond will have a number of benefits for shareholders including reducing the group’s ongoing interest costs (the bond was costing €5m a year in interest), as well as preventing the shareholdings of existing investors being diluted if the bond had been converted.

Dilution

Fiona Muldoon, chief executive at FBD, said the agreement to purchase the bond was a win for the group’s shareholders.

“This transaction is a great result for our loyal shareholders. It avoids any dilution of their existing shareholdings and ensures that FBD continues to maintain a very strong capital position,” said Muldoon.

FBD will fund the €86m purchase of the bond through a combination of existing cash and the issuance of €50m in new debt. The insurance group says its solvency capital ratio will remain in a healthy position above its target range of 120% to 140% despite the new debt.