Buffett Grabs Chunk of TXU Deal Debt

CNBC.com and Fortune reported Monday that billionaire investor Warren Buffett bought $2.1 billion worth of TXU high-yielding ("junk") bonds from Goldman Sachs (GS) last week. Buffett was quick to clarify that the purchase by holding company Berkshire Hathaway (BRK.A) indicates his confidence in TXU and possibly the utility sector in general, but should not be construed as an endorsement of junk bonds per se. CNBC's Becky Quick quoted Buffett as saying some recent bond issues give new meaning to the word "junk." Berkshire purchased $1.1 billion of TXU bonds with a 10.25% coupon at $0.95 on the dollar and $1 billion of 10.5% pay-in-kind toggle bonds for $0.93 on the dollar. (The latter can be repaid either in cash or through the issuance of new debt.) Together, the purchase represents just under half the $4.5-5 billion in TXU bonds sold in October. KKR is trying to finance its $45 billion acquisition of TXU -- the biggest buyout in history -- by selling $26 billion in loans and $11 billion in bonds. The utility sector advanced for the most part Monday, as did the Utilities Select Sector SPDR Fund (XLU).

Sources: Forbes, CNBC.com, Portfolio.com, New York Times
Additional Reading: Credit Crisis May Prove Windfall for Berkshire - WSJ

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