Berkshire Hathaway Inc.’s $1 billion note sale shows that while Chief Executive Officer Warren Buffett may pity investors who’ve stuck with bonds as yields fall to record lows, he’ll sell them as much debt as they want.
The company’s Berkshire Hathaway Finance Corp. sold five- and 30-year securities offering the company’s lowest coupons for those maturities ever. Berkshire, wh
Berkshire isn’t buying corporate bonds, Buffett, 82, said during a May 4 interview with Bloomberg Television’s Betty Liu after the company’s annual meeting in Omaha, Nebraska. With the average yield on U.S. corporate debt having fallen to a record low 3.35 percent this month from more than 11 percent in 2008, the second-richest American said at the meeting he has empathy for savers who depend on bond interest.
“Buffett’s views on current interest rates are pretty clear,” said Richard Cook, co-founder of Cook & Bynum Capital Management LLC in Birmingham, Alabama, which oversees about $270 million including Berkshire shares. “Berkshire issuing debt is effectively an efficient way to short the bond market.”
New Bonds
Berkshire Hathaway Finance’s offering yesterday consisted of $500 million each of five-year, 1.3 percent notes with a yield that’s 57 basis points more than similar-maturity Treasuries, and 4.3 percent, 30-year bonds at a 135 basis-point spread. Berkshire Hathaway Finance holds loans to Clayton Homes Inc., a Berkshire unit that manufactures housing.
Proceeds will be used to redeem $1 billion of 4.6 percent notes maturing on May 15, according to a regulatory filing. The company last offered debt in January, in a four-part deal that included $1 billion of 30-year notes, also to finance maturing securities.
“I feel sorry for people that have clung to fixed-dollar investments” Buffett said at the annual meeting. “The problem faced by people who have stayed in cash or cash equivalents or short-term Treasuries, it is brutal.”
Buffett didn’t respond to a request for comment on the bond sale sent to Carrie Sova, an assistant.
“When we borrow money, we’re thinking in terms of long maturities,” Buffett said in a Fox Business News television interview on May 6. “Anybody who’s borrowing money now should borrow out for a long period of time.”
Lengthening Maturities
In its three debt offerings since May 2012, Berkshire sold a combined $3.5 billion of debt due in 10 years or later, about 54 percent of the total, Bloomberg data show. In the three offerings prior to that, maturities of 10 years accounted for 36 percent.
Berkshire has been shrinking the size and duration of its own fixed-income portfolio, regulatory filings show. The company held $10.1 billion of corporate debt on March 31, down 24 percent from the first quarter of 2010.
The amount of fixed-income investments excluding mortgage- backed debt due in one year or less has grown to 25 percent of the portfolio, up from 18 percent in March 2010, filings show. Securities due in five through 10 years declined six percentage points to 17 percent.
ose holdings span insurance, railroads, newspapers and manufacturing, has reduced its bond investments to $28.6 billion from $34.1 billion in the last three years, regulatory filings show.