Jan. 24 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. plans to issue $1.7 billion of bonds to refinance debt sold to help pay for its acquisition of Burlington Northern Santa Fe.
Berkshire, which bought the railroad for $26.5 billion in 2010, may sell $1.1 billion of five-year notes and $600 million of 10-year debentures, according to a person with knowledge of the transaction who declined to be identified because terms aren’t set. Proceeds may be used to refinance $1.7 billion of notes that come due next month, the company said today in a filing with the Securities and Exchange Commission.
Buffett is seeking to extend maturities on Berkshire’s debt as a rally in U.S. investment-grade corporate bonds pushes yields to about the lowest level in more than two months. The Omaha, Nebraska-based company raised a total of $8 billion in the bond market in February 2010 to pay for the acquisition, the biggest in Buffett’s four-decade tenure as chief executive officer, according to data compiled by Bloomberg.
The five-year notes may yield about 100 basis points more than similar-maturity Treasuries, and the 10-year debt may pay a spread of about 137.5 basis points, the person said. A basis point is 0.01 percentage point.
Bank of America Corp. and Goldman Sachs Group Inc. are managing today’s offering, according to the SEC filing, which didn’t specify the size of the offering or the bonds’ yields.
Berkshire is ranked Aa2, the third-highest level of investment grade, by Moody’s Investors Service and AA+ by Standard & Poor’s, one step higher. It was downgraded from AAA by S&P on Feb. 4, 2010, the day it announced the bond offering to pay for the Burlington Northern acquisition.
Berkshire’s $500 million of 3.75 percent notes due in August 2021 traded yesterday at 104.7 cents on the dollar to yield 3.17 percent, or a spread of 110 basis points, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
That compares with an average spread of 174 basis points on corporate bonds rated in the AA tier and maturing in seven to 10 years, according to Bank of America Merrill Lynch index data. Spreads on Berkshire’s bonds have narrowed 10 basis points to 67 versus a year ago, while the broader investment-grade corporate bond market has widened by 74, the data show.
Yields on investment-grade company debt fell to 3.77 percent yesterday and touched 3.74 percent on Jan. 17, the lowest level since Nov. 7, according to the Bank of America Merrill Lynch U.S. Corporate Master Index.