Buffett bets $2.1bn on utility sector
Enviado: 3/12/2007 21:08Buffett bets $2.1bn on utility sector
By Francesco Guerrera and James Politi in New York
Published: December 3 2007 19:22 | Last updated: December 3 2007 19:22
Warren Buffett has rediscovered his appetite for junk bonds, buying $2.1bn in debt issued by the Texas utility TXU in a move that suggests value-seeking investors are prepared to step back into the troubled credit markets.
The decision by the “Sage of Omaha” to spend part of his $47bn war chest on the discounted TXU bonds comes as other value investors such as Wilbur Ross have taken advantage of the credit squeeze to buy assets and securities at attractive prices.
EDITOR’S CHOICE
Buffett backs higher private equity taxes - Nov-14Berkshire Hathaway profit up 64% - Nov-03Buffett cautious on $75bn superfund - Oct-26Buffett calls for caution over China stocks - Oct-24PetroChina launches its IPO - Oct-21Buffett sells entire stake in PetroChina - Oct-19Berkshire Hathaway , Mr Buffett’s insurance-to-utilities conglomerate, was unavailable for comment on the purchase of the bonds issued by TXU, which is being taken private by Kohlberg Kravis Roberts and TPG. The private equity firms agreed to buy TXU in February for $45bn including debt.
Mr Buffett described his move as a bet on the utilities sector rather than an endorsement of the junk bond market. His comments, reported by CNBC, sent utilities shares higher in midday New York trading.
Berkshire Hathaway owns MidAmerican Energy Holdings, a utility conglomerate. Earlier this decade Mr Buffett made a large profit on the purchase and subsequent sale of TXU shares.
People close to the situation said Mr Buffett acquired the bonds last week when banks financing the TXU takeover, led by Goldman Sachs, sold $3.75bn worth of debt associated with the $45bn deal, the largest leveraged buy-out in the US.
The sale of the bonds was divided into two tranches: the first was a $2bn sale of senior notes with a coupon of 10.25 per cent, priced at 95 cents on the dollar, while the second was a $1.75bn sale of “pay-in-kind” toggle notes with a coupon of 10.5 per cent priced at 93.25 cents on the dollar.
According to people familiar with the matter, Mr Buffett bought from both tranches. Analysts said the discounts were in line with recent junk bonds sales. Over the past few years, Mr Buffett has complained buoyant mergers and acquisitions, coupled with strong equity markets, made it difficult for him to find big enough takeover and investment targets at bargain prices.
Mr Buffett accumulated a cash balance of more than $47bn. In recent months, he has scoured US and overseas markets searching for takeover opportunities on which to spend his money.
By Francesco Guerrera and James Politi in New York
Published: December 3 2007 19:22 | Last updated: December 3 2007 19:22
Warren Buffett has rediscovered his appetite for junk bonds, buying $2.1bn in debt issued by the Texas utility TXU in a move that suggests value-seeking investors are prepared to step back into the troubled credit markets.
The decision by the “Sage of Omaha” to spend part of his $47bn war chest on the discounted TXU bonds comes as other value investors such as Wilbur Ross have taken advantage of the credit squeeze to buy assets and securities at attractive prices.
EDITOR’S CHOICE
Buffett backs higher private equity taxes - Nov-14Berkshire Hathaway profit up 64% - Nov-03Buffett cautious on $75bn superfund - Oct-26Buffett calls for caution over China stocks - Oct-24PetroChina launches its IPO - Oct-21Buffett sells entire stake in PetroChina - Oct-19Berkshire Hathaway , Mr Buffett’s insurance-to-utilities conglomerate, was unavailable for comment on the purchase of the bonds issued by TXU, which is being taken private by Kohlberg Kravis Roberts and TPG. The private equity firms agreed to buy TXU in February for $45bn including debt.
Mr Buffett described his move as a bet on the utilities sector rather than an endorsement of the junk bond market. His comments, reported by CNBC, sent utilities shares higher in midday New York trading.
Berkshire Hathaway owns MidAmerican Energy Holdings, a utility conglomerate. Earlier this decade Mr Buffett made a large profit on the purchase and subsequent sale of TXU shares.
People close to the situation said Mr Buffett acquired the bonds last week when banks financing the TXU takeover, led by Goldman Sachs, sold $3.75bn worth of debt associated with the $45bn deal, the largest leveraged buy-out in the US.
The sale of the bonds was divided into two tranches: the first was a $2bn sale of senior notes with a coupon of 10.25 per cent, priced at 95 cents on the dollar, while the second was a $1.75bn sale of “pay-in-kind” toggle notes with a coupon of 10.5 per cent priced at 93.25 cents on the dollar.
According to people familiar with the matter, Mr Buffett bought from both tranches. Analysts said the discounts were in line with recent junk bonds sales. Over the past few years, Mr Buffett has complained buoyant mergers and acquisitions, coupled with strong equity markets, made it difficult for him to find big enough takeover and investment targets at bargain prices.
Mr Buffett accumulated a cash balance of more than $47bn. In recent months, he has scoured US and overseas markets searching for takeover opportunities on which to spend his money.