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Berkshire Hathaway turns to Europe for dollar refinancing
[LONDON] Warren Buffett's Berkshire Hathaway is planning to raise its first ever issue in the European market, a triple-tranche euro benchmark that will refinance some of its dollar debt.
The Aa2/AA rated conglomerate is taking advantage of a strong backdrop and record low yields in the single currency, becoming the latest in a string of US names to cross the pond in recent months.
Lead managers are marketing an eight-year tranche at 35bp area over mid-swaps, a 12-year at 50bp area and a 20-year at 65bp area, implying respective yields of around 0.9 per cent, 1.34 per cent and 1.75 per cent.
Those yields are much lower than the 3.2 per cent coupon on a US$1.7 billion bond that matured on February 11, 2015 which Berkshire is refinancing with this new issue.
The company reported earnings in February, posting a fourth-quarter profit decline of 17 per cent as investment gains declined, but operating results improved.
A hedge fund manager said he expected the deal to go well and replicate the success of a US$8.5 billion transaction priced for Coca-Cola last week.
"Berkshire is a well respected name and well rated," he said.
"Providing they don't print too large a size it should have a good following. Saying that, many insurance companies perceive the issuer to be 'insurance', and may not participate as it would be effectively be financing a competitor."
The influx of US corporates into Europe is showing no sign of abating. More than US$15 billion priced last week alone, despite unfavourable moves in the cross-currency basis swap over the course of the year so far.
Market players say US companies can still save up to 15bp by issuing in euros, particularly in the longer maturities.
Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, and Wells Fargo are lead managers.