Banking, finance, and taxes

Safer Than Sovereign Debt... Buffett & Bekshire Hathaway Raising $8 Billion (BRK-A, BRK-B, JPM, WFC, BNI)

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) is about to price a very large debt offering.  With as many European nations as we are seeing having debt downgrades or credit concerns on their sovereign debt, Warren Buffett should probably go ahead and get this behind him as soon as he can.  After all, this is supposed to be an $8 billion debt sale from Berkshire.  The underwriting group here is surprisingly small as the book-running manager is J.P. Morgan (NYSE: JPM) and the joint lead manager is Buffett’s favorite bank Wells Fargo & Co. (NYSE: WFC).

The original prospectus filed this morning actually has a February 1 date, but an $8 billion debt issuance is going to get attention in the capital markets.  As a reminder, this isn’t just spending cash or capital raising for a rainy day.  This is to help fund that massive whale of a deal for Burlington Northern Santa Fe (NYSE: BNI).  This will also in a roundabout way help to seal the fate of when exactly Berkshire Hathaway becomes a member of the S&P 500 Index.

There are multiple maturities here in the prospectus, which is not unusual.  There is a 1-year floating rate note and a fixed and/or floating rate notes for maturity in 2-years and 3-years.  There is also a 5-Year fixed rate note due in 2015 that will be coming.  All of the proceeds are earmarked for paying the BNSF holders in this mega-merger, although there is an out that if the acquisition conditions are not met then the cash raised will be “for general corporate purposes.”

It is hard to imagine that Berkshire will have any shortage of demand for the offering.  If it is signed and stamped by Warren Buffett it is going to have ample client demand from corporate bond buyers.  Investors will get a higher yield than Treasuries or against other sovereign debt, and some might even argue that they’d rather loan money To Uncle Warren over Uncle Sam.

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