Buffett at Tiffany’s

Someday the entire jewelry industry may work for Warren Buffett.


OK, I’m kidding, but Berkshire Hathaway’s decision to purchase $250 million of Tiffany bonds shows he is increasing his exposure to the industry. (Although this is a strict loan; there is no option to convert it to stock.)


A couple of interesting things about this:


– The $250 million loan replaces two payments Tiffany would have had to make: two pieces of debt totaling $116 million that were coming due next month, and a $40 million piece of long term debt that was coming due in July.


“We would have to borrow [to make those payments] under short-term debt, but we didn’t want that,” says vice president of investor relations Mark Aaron. “This is essentially shifting short term debt into long term debt and locking up the money for the long term – which is typically the way we like to finance our business.”


The extra money will go to “general corporate purposes.” The new loans will be due in 2017 and 2019 – when we hope this recession will be long gone.


– The loan has a hefty 10 percent annual interest rate, although that’s actually less than Buffett’s rates for other recent loans.  Still, in this environment, it’s tough to get any financing, let alone for a retailer.


“Certainly, a year ago, the rate would be a lot lower than ten percent,” says Aaron.


– This is a welcome demonstration of faith in the Tiffany brand, which has not been immune from this recession. Motley Fool notes that it fits into Buffett’s recent pattern of investing in “marquee names” that are suddenly in need of money. Still, it’s worth noting that Buffett’s investment here is, in the words of one shareholder, “not even a rounding error for him.”

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JCK News Director

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