Monday, March 2, 2009

Is Buffett Aggressively Writing Down Utility Bonds?

Reading through the figures in the back of the annual report, I noticed an interesting item. An even $1.5 billion unrealized capital loss on corporate bonds and preferred stocks. This is a surprise, although I suppose that it is reasonable to say that the market value of the preferreds would have decreased, if they were publicly traded.There were 3 big preferred deals. The Wrigley/Mars financing, the GE $3 billion deal, and the Goldman $5 billion deal.  The "fair value" section at the end of the report lists $8 billion in level 3 fixed income securities.  These may well be the Goldman and GE stakes.
It is possible that the unrealized losses relate to last year's $2.1 billion purchase of TXU bonds.  These table shown above includes only the insurance subs.  There are no doubt bonds carried in the holding company or financial subs.  The total of $10,230 is less then the total of the 3 large deals.  $6.5 Mars, $5 Goldman, and $3 GE.  

The TXU bonds included both regular high yield and pik/senior toggle notes.  They elected to toggle Oct 31.

These bonds were private placement, and I don't know if there are market quotes.  However, they are likely candidates for a haircut.

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