Berkshire Hathaway Faces Higher Funding Costs Now
Ravi Nagarajan submits:
Berkshire Hathaway (BRK.A) sold $750 million of three year 4 percent notes yesterday priced to yield 282 basis points more than Treasuries of similar maturities based on several news stories published yesterday. Berkshire Hathaway Finance Corporation has issued the debt to provide funds for the Clayton Homes subsidiary for purposes of mortgage origination. I wrote about Clayton homes earlier this month and noted the company’s admirable track record related to its lending practices and the low default and foreclosure rate of its loans.
Earlier this month, Fitch Ratings downgraded Berkshire Hathaway’s credit rating on unsecured debt from AAA to AA+. Earlier this week, Standard and Poor’s lowered its outlook on Berkshire Hathaway from stable to negative. The result appears to be at least partially responsible for a slight increase in Berkshire’s funding costs. While yesterday’s notes were priced to yield 282 basis points over Treasuries, the yield spread was only 220 points in January when Berkshire sold $250 million of 5.4 percent notes due in 2018.
