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Berkshire Sells $500 Million of Notes as Borrowing Costs Fall

Berkshire Sells $500 Million of Notes
A model home sits on a flatbed at the Clayton Homes of Mesa in Mesa, Arizona. Photographer: Laura Segall/ Bloomberg

Dec. 7 (Bloomberg) -- Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. sold $500 million of notes to repay debt maturing next week for its Clayton Homes manufactured home unit.

The 2.45 percent five-year senior notes, issued through Berkshire Hathaway Finance Corp., yield 85 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds will repay the finance arm’s existing 4.2 percent senior notes due Dec. 15, the Omaha, Nebraska-based company said in a regulatory filing.

Buffett’s firm sells bonds in part to finance mortgages for people who buy Clayton’s factory-built housing. The finance unit tapped demand for corporate bonds after yields on investment-grade debt fell below 4 percent and two months after Buffett said that investors “are making a mistake” buying bonds instead of shares.

In his yearly letter accompanying Berkshire’s 2009 annual report, Buffett said the company will continue backing Clayton’s home-loan program.

“Even today, though job-loss troubles have grown, Clayton’s delinquencies and defaults remain reasonable and will not cause us significant problems,” Buffett, 80, wrote in the letter.

The housing crisis and U.S. unemployment spurred Standard & Poor’s to cut its outlook on Clayton in April, when the jobless rate reached 9.9 percent. Unemployment, which dipped to 9.5 percent in June, climbed to 9.8 percent last month, the Labor Department said on Dec. 3.

‘Stocks are Cheaper’

Buffett was able to lower borrowing costs as yields on investment-grade corporate bonds dropped to an average of 3.911 percent from 4.011 percent on Dec. 2, according to a Bank of America Merrill Lynch index that tracks more than 4,400 bonds.

While yields have risen from 3.53 percent on Nov. 4, the lowest level since the index began in October 1986, they’re down from 4.89 percent at the end of 2009.

“It’s quite clear that stocks are cheaper than bonds,” Buffett said in October at Fortune magazine’s Most Powerful Women conference in Washington. “I can’t imagine anyone having bonds in their portfolio when they can own equities.”

Installment loan balances held by Berkshire’s finance and financial products division, which includes Clayton, declined about 2 percent last year to $12.3 billion, according to Berkshire’s annual report.

The finance arm issued $500 million of the 4.2 percent notes in December 2003, and then exchanged the debt for freely tradable securities in May 2004, according to data compiled by Bloomberg.

Berkshire Hathaway Finance had $12.1 billion of medium-term notes outstanding on Dec. 31, 2009, with maturity dates between 2010 and 2018, according to the annual report. Proceeds are used to finance originated and acquired loans of Clayton Homes.

Goldman Sachs Group Inc. managed today’s offering, according to the regulatory filing.

To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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