Berkshire Hathaway Finds Cheaper Borrowing Costs in Europe

Industrials

Published: March 5, 2015 3:32 pm

Last Updated: March 6, 2015 7:25 am

Berkshire Hathaway Inc. (NYSE: BRK-A) has made some interesting news this week. The conglomerate under Warren Buffett has successfully borrowed over $3 billion in new note and bond offerings. What is interesting is that the traunches were sold in Europe rather than the United States.

What stands out is the obvious reason: The negative rate climate in Europe makes it cheaper to borrow in Europe than in the United States at this time. After all, what does it say when Spain and Portugal have yields with similar maturities than the United States — or what are effectively negative interest rates in the core national ECB markets.

Another issue may be at hand, but it will be harder to grasp for a multi-year or generational period — what if Mr. Buffett thinks that the Euro is poised for an even longer-term and deeper decline than many strategists currently expect. If that happens, then Buffett could theoretically borrow the $3.3 billion or so equivalent and only have to repay $2.5 billion or so upon maturity.

We have seen the filing and these are three traunches that Berkshire Hathaway has priced:

€750,000,000 0.75% Senior Notes due March 16, 2023 at an issue price of 99.614%. The gross spread was 37.5 basis points with a yield of 0.80%. The spread to the benchmark was 68 basis points.
€1,250,000,000 1.125% Senior Notes due March 16, 2027 at a price of 98.725% with a Gross Spread 45 basis points with a Yield to Maturity of 1.240%. The spread to the benchmark was 90.3 basis points.
€1,000,000,000 1.625% Senior Notes due March 16, 2035 at a price of 99.611% with a gross spread of 62.5 basis points with a Yield to Maturity of 1.648%. The spread to the benchmark was 86.2 basis points.

Berkshire Hathaway’s joint book runners in the offering were listed as Deutsche Bank, Goldman Sachs, Merrill Lynch, and Wells Fargo Securities.

In a filing from the prior day, the note offering was said to have a use of proceeds as being to replace its $1.7 billion amount of 3.2% Senior Notes due February 2015 that matured and was repaid on February 11, 2015. The remaining proceeds were earmarked for general corporate purposes — although some speculated that this could be used for bolt-on acquisitions in Europe or elsewhere.

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