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Buffett's Burlington Northern Boosts Size of Debt Offering to $750 Million
Burlington Northern Santa Fe, the railroad acquired this year by Warren Buffett’s Berkshire Hathaway Inc., boosted the size of its second bond offering in 2010 to $750 million.
The company may sell $250 million of 10-year notes and $500 million of 30.5-year debt as soon as today, according to a person familiar with the transaction. Proceeds may be used for working capital, capital expenditures and to repay outstanding debt, Burlington Northern said today in a regulatory filing that didn’t specify the sale’s size, maturity or timing.
Burlington Northern, which was purchased by Buffett in February for $27 billion in the biggest acquisition of his career, sold $750 million of debt on May 12, according to data compiled by Bloomberg. That sale of notes due 2040 reduced the amount of securities the railroad can issue through a debt shelf registration to $750 million as of June 30, the Fort Worth, Texas-based company said in an Aug. 6 regulatory filing.
Burlington Northern’s 10-year notes may yield about 100 basis points more than similar-maturity Treasuries, and the 30.5-year debt may pay a spread of about 140 basis points, said the person, who declined to be identified because terms aren’t set. A basis point is 0.01 percentage point. The company earlier planned to sell $500 million of debt, the person said.
The railroad has $11.1 billion of long-term debt, according to the Aug. 6 filing.
‘Good Times’
Berkshire Hathaway plans to include Burlington Northern’s results among those from its regulated utilities, as the businesses have “similar underlying economic characteristics,” Buffett wrote in his annual letter to shareholders on Feb. 27.
“Both are logical users of substantial amounts of debt that is not guaranteed by Berkshire,” Buffett wrote. “Both will earn and invest large sums in good times or bad, though the railroad will display the greater cyclicality,” the billionaire investor said.
“Overall, we expect this regulated sector to deliver significantly increased earnings over time, albeit at the cost of our investing many tens -- yes, tens -- of billions of dollars of incremental equity capital,” Buffett wrote.
The debentures may have a so-called poison put that would allow investors to sell the bonds back to the company at 101 cents on the dollar if there is a change of control and a ratings downgrade below investment-grade, according to today’s filing. Moody’s Investors Service rates the railroad A3, and Standard & Poor’s grades it a step lower at BBB+.
Burlington Northern’s 5.75 percent, 30-year bonds priced at 99.663 cents on the dollar to yield 5.774 percent, or a 128 basis point spread, Bloomberg data show. The debt traded at 110.355 cents on the dollar to yield 5.066 percent, or 134.4 basis points more than similar-maturity Treasuries on Sept. 2, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net
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