Friday, November 20, 2009

Buffett Cuts Sweet Deal for Burlington Northern Loan

It's no surprise that Warren E. Buffett can command enviable terms when it comes to bank loans. That's the case with the $8 billion loan he is borrowing to take over the rest of railroad operator Burlington Northern for $26 billion.

Burlington Northern disclosed in a regulatory filing on Thursday that Mr. Buffett's Berkshire Hathaway is borrowing the $8 billion from JPMorgan Chase (as administrative agent) and Wells Fargo (as syndication agent), paying about 1 percent to 2 percent over the London interbank offered rate, a common base for interest payments known as Libor.

The three-month Libor rate is currently .27 percent, magnitudes better than the 2.22 percent it was one year ago.

How can Mr. Buffett get such a good deal? As Paul Howard, a credit analyst, told Bloomberg News, Mr. Buffett probably has "a Rolodex full of potential creditors," adding: "If he doesn't like the terms of one, he'll call the next one."

Still, it's a big amount to borrow, even for Mr. Buffett's still-triple-A-rated Berkshire. He's conceded that the deal for Burlington is "not a bargain."