Author Topic: 20190506 CNBC interview - post AGM  (Read 1747 times)

rolling

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Re: 20190506 CNBC interview - post AGM
« Reply #10 on: May 17, 2019, 02:22:22 AM »
underwhelmed by the due diligence/analysis that WB seemed to exercise in connection with oxy commitment.  not to mention that CM was sleeping at the time.

The OXY financing commitment is essentially a credit decision  -  i.e
1) will they default?
2) if they default, how much will BRK recover? 

For the credit risk, BRK is receiving a 5.55% spread over UST 10yr (8% coupon vs 2.45% UST 10yr), as well as a $50mn financing commitment fee.

The warrants are icing on the cake.

I disagree with this.  the warrants are the cake and WB basically said I dont care how much oxy pays for apc, he has no outs, so he is letting someone else (apc ceo) drive his investment (warrants).  I say warrants are the cake because while 8% is a great div yield, brk is not a credit spread hedge fund...at least it used not to be
He looks for a minimum 10%pre tax. Taxes on prefered stocks are lower, so he might accept a little less.the warrants are the return above threshold.
My usual portfolio: Highly concentrated (up to 3 or 4 positions) in smallcaps and microcaps.


kiwing100

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Re: 20190506 CNBC interview - post AGM
« Reply #11 on: May 17, 2019, 09:23:13 PM »

He looks for a minimum 10%pre tax. Taxes on prefered stocks are lower, so he might accept a little less.the warrants are the return above threshold.
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FYI, here is what Buffett had to say about the preferreds in the past (in BRK AGM's)

1) on the US Airways convertible preferred

"By the terms of our preferred, in just a little over two years, we are due to be paid back our principal amount. It was really a loan in equity form, with a kick ó possible kicker on the upside because of the conversion privilege on the preferred."


"we have the convertible preferreds of Champion, of US Airways, and of Salomon. And those are three industries ó I donít think weíve ever owned an airline stock, common stock. I donít think weíve ever owned a paper company common stock.  And weíve only had a very limited amount of investment in the investment banking businesses.

Those are industries that we donít feel that weíve got the same kind of long-term economic advantage that we have in something like a Coke or a Gillette. So those are not natural places for us to be common shareholders. And the issuance of that exchangeable debt reflected that view."


2) on the Goldman Sachs preferred

So every day that goes by that Goldman does not call our preferred is money in the bank. Itís been pointed out that our preferred is paying us $15 a second. So as we sit here, tick ó(laughter) ó tick, tick, tick, thatís $15 every tick. (Applause) I donít want those ticks to go away. (Laughs)  I just love them. They go on at night when I sleep ó (laughter) ó on weekends.

And frankly, Goldman would love to get rid of that preferred. I mean, they only agreed to sell us that preferred because it was sort of at the height of the crisis.


Now, there were different risk profiles, obviously, in investing. And the truth is, I donít know whether Harley-Davidson equity is worth $33 or $20 or $45. I just have no view on that.  You know, I kind of like a business where your customers tattoo your name on their chest or something. But ó (laughter) ó figuring out the economic value of that, you know. Iím not sure even going out and questioning those guys Iíd learn much from them. (Laughter)

But I do know, or I thought I knew, and I think I was right, that, A) Harley-Davidson was not going out of business. And that, B) 15 percent was going to look pretty damned attractive.

And the truth is, we could probably sell those bonds, I donít know, probably at 135 or something like that. So we could have a very substantial capital gain, a lot of income.

I knew enough to lend them money; I didnít know enough to buy the equity. And thatís frequently the case. And, you know, we love buying equities, but we love buying the Goldman preferred at 10 percent.

Now, letís say Goldman, instead of offering me the 10 percent preferred and warrants had said, ďYou can have a 12 percent preferred, non-callable,Ē I might have taken that one instead. I mean, the callable ó so thereís a tradeoff involved in all these securities.

And obviously, if I think I can make very good money, as we did on Harley-Davidson, with a very simple decision, just a question of, ďAre they going to go broke or not?Ē as opposed to a tougher decision, ďIs the motorcycle market going to get diminished significantly? And, you know, are the margins going to get squeezed somewhat?Ē And all of that. Iíll go with a simple decision.