Warren Buffett's $8 billion loan

Buffett's Berkshire Hathaway gets a short one-year term at very low rates. Why not longer?

By Kim Peterson Nov 24, 2009 5:53PM
Warren Buffett has arranged an $8 billion loan from JPMorgan Chase and Wells Fargo so that he can buy the Burlington Northern Santa Fe (BNI) railroad, Bloomberg reports.

The loan isn't a surprise, especially for a $26 billion purchase. But what has some people puzzled is the loan's term: one year. Why so short?

The interest rate is 1 percentage point to 2 percentage points more than the London interbank offered rate, which is down to about 0.27 percent.

"Isn't borrowing short-term at a low interest rate to buy a long-term asset what caused a lot of problems for housing buyers?" asks Robert Wenzel of EconomicPolicyJournal.com. "I certainly hope Buffett isn't expecting interest rates to be lower one year out."

Wenzel guesses that Buffett's going to free up some other cash to pay the debt, and is using the one-year loan as a bridge in the meantime.

Buffett has “got to have a Rolodex full of potential creditors,” one analyst told Bloomberg. “If he doesn’t like the terms of one, he’ll call the next one.”

Related reading:


0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
265
265 rated 2
429
429 rated 3
612
612 rated 4
499
499 rated 5
525
525 rated 6
701
701 rated 7
533
533 rated 8
337
337 rated 9
131
131 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.