No. of Recommendations: 8
"Charlie thought Warren tinkered too much around the edges on things that made little difference like the square negative yield bonds."
Squarz! I think Charlie said Warren was bored when he concocted these.
A blast from the past. I remember discussing that on one of the old boards:
https://pages.stern.nyu.edu/~igiddy/cases/berkshir..."May 22, 2002
WARREN E. BUFFETT wants to borrow up to $287.5 million, and he thinks he should pay a negative interest rate on the money. That is, he thinks the lenders should pay him money. And what do the lenders get in return, aside from negative cash flow? They receive the right to buy shares in Berkshire Hathaway at a premium over the current market price. That right will be good for five years, by which time, the lenders will hope, Berkshire stock will have risen enough to make the investment a good one
The offering is a private placement that was unveiled to institutional investors yesterday afternoon by Goldman, Sachs, which designed the structure. In its announcement, Berkshire Hathaway said it was "the first-ever negative-coupon security." It is being offered in a private placement only to institutional buyers. The exact pricing is expected to be disclosed today.
Under the proposal made to investors, Berkshire would pay perhaps 3 percent a year on the bonds it is issuing. But the investor would also receive a warrant allowing the purchase of Berkshire stock.
To keep the warrant alive, investors would have to pay a higher rate, perhaps 3.75 percent, at the same time Berkshire made the interest payments. The net effect would be that Berkshire would receive a negative interest rate.
• The warrant is expected to be priced at about a 12.5 percent premium over Berkshire's current stock price. The deal was disclosed after the market closed yesterday, with Berkshire shares up $300, to $77,900, in New York Stock Exchange trading."
