Friday, September 10, 2010

"Burlington Northern Sells $750 Million in New Bonds" and "Weekly Rail Traffic Continues to Improve, Rail Volume Now At Highest Level Since 2008" (BRK.B; BRK.A)

Ummm... Is Warren Buffet sharp or what?
First up The Rational Walk:
Burlington Northern completed the sale of $750 million in new bonds on September 8 in two tranches.  The company issued $250 million 3.6% coupon ten year notes at 99.868 to yield 3.616% and $500 million 5.05% 30 year bonds at 99.631 to yield 5.074%.  The size of the overall deal was increased from an originally planned $500 million.  The ten year note was priced to yield 100 basis points over the ten year treasury while the thirty year bond was priced to yield 140 basis points over the thirty year treasury bond. Burlington Northern was acquired by Berkshire Hathaway earlier this year. 

Berkshire does not guarantee any of Burlington Northern’s debt.  For more details, please refer to the offering document filed with the SEC.

According to the SEC filing, Burlington Northern will use the funds “for general corporate purposes, which may include but are not limited to working capital, capital expenditures, and repayment of outstanding indebtedness.”  Matthew Rose, CEO of Burlington Northern, has previously indicated that the company is planning to accelerate capital expenditures with funds that were previously used for dividends and share repurchases.

In light of prior statements regarding accelerated capex, it was somewhat surprising to find that Burlington Northern paid a $250 million dividend to Berkshire during the second quarter....MORE
That is cheap money.
And from Professor Perry at Carpe Diem:

WASHINGTON , D.C. – Sept. 9, 2010 – "The Association of American Railroads (AAR) today reported weekly rail carload volume set a new 2010 record for the second consecutive week. U.S. railroads originated 305,000 carloads during the week ending Sept. 4, 2010, up 6.9 percent compared with the same week in 2009, and at comparable levels to the same week in 2008 (see charts above)....MORE