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Comment by sputknick | Hacker News Reader

I think the challenge here is the government is probably offering better terms than can be expected from Buffet. If someone is offering me free money, and someone will give me money if I give them control of my company guess which one I'm calling first.

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I wonder if that means Berkshire's recent bond offering was a mistake: https://www.fool.com/investing/2020/04/12/this-warren-buffet...

Berkshire has always held a ton of cash for just such an occasion. They can just buy up equity on the open market and take substantial control of a company. But, did they need even more money?

It was the right decision at the time. It's unlikely anyone could've predicted the Federal Reserve and the Treasury Dept would've stepped in with unlimited support before the recent self-imposed economic collapse.

They announced their intention to offer bonds in late March, well after it was generally known that the government intended to step in.

I don't believe it was until early April when the full force of support was evident.

https://news.ycombinator.com/item?id=22822869

The recent Fed announcements mostly served to reopen the high yield primary market and the investment grade markets were wide open well before that; especially for a strong issuer like BRK.

>Berkshire has always held a ton of cash for just such an occasion.

Perhaps the occasion hasn't presented itself yet...

It's Yen-denominated debt-- mostly useful to Berkshire so they can make Yen-denominated investments without currency risk. It's at less than 1% a year, which costs virtually nothing given the options it opens up for Berkshire. And you'll note that that debt makes up less than 1% of its total cash position, it's really just there so Berkshire can buy something quickly in Yen if an opportunity shows up.

oh man. nothing you have said make any kind of sense.

if they have yen-denominated debt, then they have added currency risk

if it is 1% of their cash position, they can just use some cash and buy yens and have those yens available.

if they have hedged the bond currency risk, then they might as well have hedged it after buying yens in the open market

if it's 1% interest, it is still probably more than the interest they earn on their cash position.

just saying...

(MAYBE, maybe, its a tax issue)

You're coming at this from a "hedging" perspective-- Instead, think in terms of what the bond gives him-- a lot of Yen. That's opportunities to invest. The increased "risk" in this sense is miniscule-- since the cost of the oppurtunity is less than 1% Yen a year, even a 200% rise in Yen/USD only actually costs Berkshire 2%.

And, my bet is Buffett knows of some companies he could deploy that Yen in right now to cover the interest anyway. He's just lying in wait for better oppurtunities.

Now, there could be some other thing going on-- but taxes-wise in general U.S. companies issue US-denominated bonds to repatriate funds so I'm sure where you're going with that. My bet would be if it's not just for the opportunity, it may for their re-insurance reserves.

This doesn't make any sense. Issuers don't need to pre-fund acquisitions before making offers so BRK wouldn't need any JPY before acting and in the event of an acquisition closing, they would easily be able to issuer in any currency on earth. Don't know the name well at all but BRK issued in JPY last year as well so I'm guessing they have some recurring JPY liabilities.

What doesn't make sense to you? They're "buying" Yen and paying extraordinarily low long-term rates. Berkshire can't get USD that cheaply. If they had a cash crunch, they could exchange the Yen for USD. If things are well, they can buy Yen-denominated companies with an enormously low cost of capital and without factoring in the exchange rate.

BRK issues regularly at the insurance company level. I wouldn't overthink it. Even with the recently issued USD bonds much wider, they're still yielding around the same at issue with rates much lower. Strong issuers like BRK should be taking advantage of much lower rates and extreme demand for investment grade bonds right now to refinance higher coupon debt.

The US government as considered taking equity stakes, too.

https://www.marketplace.org/2020/03/20/covid19-financial-bai...

The US government is receiving warrants as part of the airline bailouts. In the case of AAL, they could potentially dilute existing shareholders by 10%. Ridiculously generous terms on everything considering the alternative.

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