The Buffett

 
 


  • Warren Buffett Stock - Investment Details since 1967

    1. --------------------------------------------------------------------

      Period 8

    2. Berkshire's earnings 1997-2001
    3. Berkshire's bet on commodity futures and interest rates
    4. Berkshire's acquisition of star furniture
    5. Berkshire's acquisition of International Dairy queen
    6. Berkshire's acquisition of Net jets
    7. Berkshire's acquisition of Gen re.
    8. GEICO's aggressive marketing
    9. Bill Child - An ideal CEO
    10. Berkshire's acquisition of Jordan Furniture
    11. Berkshire's entry into Energy sector
    12. Berkshire's acquisition of CORT Business service
    13. How Berkshire ended up with eight acquisitions in 2000
    14. Berkshire's acquisition of Mitek
    15. Berkshire's acquisition of Fruit of Loom
    16. Berkshire's stock at height of internet bubble
    17. Berkshire rocked by 9/11
    18. Berkshire's investments 1997-2001
    19. Berkshire's investment in Finova junk bonds
    20. Berkshire's earnings from 1997-2001 (All numbers in millions)

      SEGMENT
      1997     1998     1999     2000     2001    
      Avg Float
      $7,093.10     $22,762.00     $25,298.00     $27,871.00     $35,500.00
      Underwriting Berkshire group
      -     -     -     -     ($433.00)
      Underwriting - super cat
      $182.70     $100.00     -     -     -
      Underwriting - Re-insurance
      ($100.10)     ($114.00)     ($927.00)     ($911.00)     -
      Underwriting - GEICO
      $181.10     $175.00     $16.00     ($146.00)     $144.00
      Underwriting - other primary
      $34.10     $10.00     $14.00     $16.00     $18.00
      General re
      -     $16.00     -     -     ($2,391.00)
      Insurance investment income
      $703.60     $731.00     $1,764.00     $1,946.00     $1,968.00
      Apparel
      -     -     -     -     ($28.00)
      Building products
      -     -     -     $21.00     $287.00
      Buffalo News
      $32.70     $32.00     $34.00     -     -
      Finance businesses
      $18.00     $133.00     $86.00     $343.00     $336.00
      Flight services
      $84.40     $110.00     $132.00     $126.00     $105.00
      Retail operations
      -     -     -     $104.00     $101.00
      Home Furnishings (Before 1995 only NFM)
      $32.20     $41.00     $46.00     -     -
      Jewelry
      $18.30     $23.00     $31.00     -     -
      International Dairy queen
      -     $35.00     $35.00     -     -
      See's candies
      $35.00     $40.00     $46.00     -     -
      Shoe group
      $32.20     $23.00     $11.00     -     -
      Other businesses
      -     -     -     $133.00     $131.00
      Mid American Energy
      -     -     -     $109.00     $230.00
      Scott Fetzer - Diversified mfg (excluding finance)
      $77.30     $85.00     $92.00     $80.00     $83.00
      Shaw industries
      -     -     -     -     $156.00
      Purchase acctg adjustments
      ($97.00)     ($118.00)     ($648.00)     ($843.00)     ($699.00)
      Interest expense
      ($67.10)     ($63.00)     ($70.00)     ($61.00)     ($60.00)
      Purchase acctg adjustments
      ($97.00)     ($118.00)     ($648.00)     ($843.00)     ($699.00)
      Interest expense
      ($67.10)     ($63.00)     ($70.00)     ($61.00)     ($60.00)
      Shareholder designated contributions
      ($9.90)     ($11.00)     ($11.00)     ($11.00)     ($11.00)
      Others
      $37.00     $29.00     $20.00     $30.00     $16.00
      OPERATING INCOME
      $1,194.50     $1,277.00     $671.00     $936.00     ($47.00)
      (Insurance investment income / avg float) %
      9.92%     3.21%     6.97%     6.98%     5.54%
      Sale of securities
      $707.10     $1,553.00     $886.00     $2,392.00     $842.00
      TOTAL
      $1,901.70     $2,830.03     $1,557.07     $3,328.07     $795.06

      Share of investment income in Berkshire's overall income. (All numbers in $millions)

      1997     1998     1999     2000     2001    
      Sum of Insurance investment income and gain from sale of securities (S)
      $1,410.70     $2,284.00     $2,650.00     $4,338.00     $2,810.00    
      (S) / Total income
      74.18%     80.71%     170.19%     130.35%     353.43%

      BERKSHIRE's BET ON COMMODITY FUTURES In 1994-95 Berkshire established a derivative contract for 45.7 million barrels of oil. Contracts for 31.7 million barrels were settled in 1995-97 giving Berkshire a pre-tax gain of $61.9 million. In the remaining 14 barrels Berkshire had an un-realized gain of $11.6 million. In 1996 Berkshire bought 111.2 million ounces of silver. It produced a pre-tax gain of $97.4 million in 1997. Buffett was not new to silver. In 1967 he did buy silver anticipating demonetization by US Government.

      BET ON INTEREST RATES : Berkshire had $4.6 billion long-term zero coupon obligations of US Treasury. These securities paid no interest. Instead, they provide returns by way of discount at which they are purchased. Thus interest rates rise the prices of these securities fall and vice-versa. Since rates fell in 1997, Berkshire by year-end had an unrealized pre-tax gain of $598.8 million. Buffett also acknowledged that these moves were mostly based on his judgment on macro level economics. Following were his comments on this in the 1997 shareholder's letter :

      "On purchasing zeros, rather than staying with cash-equivalents, we risk looking very foolish: A macro-based commitment such as this never has anything close to a 100% probability of being successful. However, you pay Charlie and me to use our best judgment -- not to avoid embarrassment -- and we will occasionally make an unconventional move when we believe the odds favor it. Try to think kindly of us when we blow one. Along with President Clinton, we will be feeling your pain: The Munger family has more than 90% of its net worth in Berkshire and the Buffett's more than 99%."

      Star Furniture Bob Denham of Salomon referred Buffett about this business. The company operated several furniture stores in Texas. It was founded by Wolff family in 1924. But the business was struggling when Melvyn Wolff and Shirley Toomin took it over in 1962. But under there able leadership business prospered and in 1997 operated 12 stores in Texas.

      International Dairy Queen For many years IDQ had a bumpy history. Then, in 1970, a Minneapolis group led by John Mooty and Rudy Luther took control. The new managers inherited a jumble of different franchising agreements, along with some unwise financing arrangements that had left the company in a precarious condition. In the years that followed, management rationalized the operation, extended food service to many more locations, and, in general, built a strong organization. In 1996 Mr. Luther died, which meant his estate needed to sell stock. A year earlier, Dick Kiphart of William Blair & Co., had introduced Buffett to John Mooty and Mike Sullivan, IDQ's CEO, and Buffett had been impressed with both men. So, when he got the chance to merge with IDQ, he offered a proposition patterned on his FlightSafety acquisition, extending selling shareholders the option of choosing either cash or Berkshire shares having a slightly lower immediate value. By tilting the consideration as he did, he encouraged holders to opt for cash, the type of payment he by far prefers. Even then, only 45% of IDQ shares elected cash. On January 7, 1998, International Dairy Queen became a wholly owned subsidiary of Berkshire. Shareholders of Dairy Queen received merger consideration of approximately $590 million, consisting of $265 million in cash and the remainder in Class A and Class B Common Stock. It's interesting to note that Buffett and Charlie consistently put their money where their mouth is - Charlie has been patronizing the Dairy Queens in Cass Lake and Bemidji, Minnesota, for decades, and Buffett has been a regular in Omaha.

      NetJets Rich Santulli created the fractional ownership industry in 1986, by visualizing an important new way of using planes. Then he combined guts and talent to turn his idea into a major business. In a fractional ownership plan, one purchases a portion - say 10% - of any of a wide variety of jets that EJA offers. That purchase entitles the customer to 100 hours of flying time annually. (Dead-head hours don't count against one's allotment, and customer is allowed to average its hours over five years.) In addition, one pays both a monthly management fee and a fee for hours actually flown. Then, on a few hours' notice, EJA makes there plane, or another at least as good, available to one's choice of the 5500 airports in the U.S. In effect, calling up your plane is like phoning for a taxi. Buffett first heard of the company in 1994. He quickly signed up for its services and liked it. He also liked Rich's management style and hinted Rich that if whenever he wished to sell the company Berkshire would be interested. In May-1998 Buffett got a call from Rich and pretty soon the deal was signed for $725 million. NetJets did run into rough waters in 2008 and 2009 where it was burning cash. Dave Sokol of Mid-American was pulled in and he did turnover the company in 2010 with some serious cost-cutting.

      Gen Re Berkshire paid $22bn for this acquisition.And it was for the first time that Berkshire had issued such a large amount of its stock for an acquisition. Its noteworthy to note that after the GenRe acquisition Berkshire's balance sheet (related to Finance and Financial products businesses ) significantly increased. Following is a comparison.

      FINANCE AND FINANCE RELATED PRODUCTS ?BALANCE SHEET (All numbers in millions)

      1998     1997    
      Assets
             
      Cash and cash equivalents
      $907     $56    
      Investment in securities with fixed maturities:
             
      Held to maturity, at cost (fair value $1,366 in 1998; $1,082 in 1997)
      $1,227     $971    
      Trading, at fair value (cost $5,279)
      $5,219     -    
      Available for sale, at fair value (cost $745)
      $743     -    
      Trading account assets
      $6,234     -    
      Securities purchased under agreements to resell
      $1,083     -    
      Others
      $1,576     $222    
      Total Assets
      $15,525     $1,067    
      Liabilities
             
      Annuity reserves and policyholder liabilities
      $816     $697    
      Securities sold under agreements to repurchase
      $4,065     -    
      Securities sold but not yet purchased
      $1,181     -    
      Trading account liabilities
      $5,834     -    
      Notes payable and other borrowings
      $1,503     $326    
      Others
      $2,126     $44    
      Total Liabilities
      $15,525     $1,067    

      GEICO'S AGGRESSIVE MARKETING : In 1995, the year prior to its acquisition by Berkshire, GEICO spent $33 million on marketing and had 652 telephone counselors. In 1998 the company spent $143 million, and the counselor count grew to 2,162. The effects that these efforts had at the company are shown by the new business and in-force figures below:

      Change in GEICO's number of auto policies

      YEAR
      New Auto policies     Auto policies in force    
      1993
      354,882     2,011,055    
      1994
      396,217     2,147,549    
      1995
      461,608     2,310,037    
      1996
      617,669     2,543,699    
      1997
      913,176     2,949,439    
      1998
      1,317,761     3,562,644    

      BILL CHILD - And Ideal CEO With the current state of corporate affairs where it's not rare to hear a CEO getting a golden parachute, people like Bill Child of R.C. Wiley Furnishings stand apart. Its managers like these that make Berkshire the way it is. If people like him would have been running Lehman and AIG then we wouldn't have had the financial bubble. Following is a very inspirational business story of him depicted by Buffett in his 1999 shareholder letter.

      "In their relations with Berkshire, our managers often appear to be hewing to President Kennedy's charge, "Ask not what your country can do for you; ask what you can do for your country." Here's a remarkable story from last year: It's about R. C. Willey, Utah's dominant home furnishing business, which Berkshire purchased from Bill Child and his family in 1995. Bill and most of his managers are Mormons, and for this reason R. C. Willey's stores have never operated on Sunday. This is a difficult way to do business: Sunday is the favorite shopping day for many customers. Bill, nonetheless, stuck to his principles -- and while doing so built his business from $250,000 of annual sales in 1954, when he took over, to $342 million in 1999. Bill felt that R. C. Willey could operate successfully in markets outside of Utah and in 1997 suggested that we open a store in Boise. I was highly skeptical about taking a no-Sunday policy into a new territory where we would be up against entrenched rivals open seven days a week. Nevertheless, this was Bill's business to run. So, despite my reservations, I told him to follow both his business judgment and his religious convictions. Bill then insisted on a truly extraordinary proposition: He would personally buy the land and build the store -- for about $9 million as it turned out -- and would sell it to us at his cost if it proved to be successful. On the other hand, if sales fell short of his expectations, we could exit the business without paying Bill a cent. This outcome, of course, would leave him with a huge investment in an empty building. I told him that I appreciated his offer but felt that if Berkshire was going to get the upside it should also take the downside. Bill said nothing doing: If there was to be failure because of his religious beliefs, he wanted to take the blow personally. The store opened last August and immediately became a huge success. Bill thereupon turned the property over to us -- including some extra land that had appreciated significantly -- and we wrote him a check for his cost. And get this: Bill refused to take a dime of interest on the capital he had tied up over the two years. "

      Jordan Furniture In continuation of its trend of snapping home grown, cost conscious furniture business. Berkshire added to its star lineup of Nebraska furniture mart, RC Willey and Star. Jordan furniture was started in 1927 and by 1999 had become a leading furniture chain in New England.

      BERKSHIRE'S ENTRY INTO THE ENERGY SECTOR: Walter Scott Jr is a director of Berkshire. He also had a controlling stake at Mid-American Energy. Buffett always admired Walter's leadership. When Walter offered Berkshire a stake in Mid-American, Buffett jumped at it. In 1999 because of Public Utility Holding company Act-1935, Berkshire had to limit its voting rights by 10%. So Berkshire also bought 11% fixed income security and exchangeable preferred that gave Berkshire a 76% equity stake.

      CORT Business service On Nov-23, 1999 Buffett received a fax from Bruce Cort who had appended an article stating an aborted deal for Cort's buyout. Interestingly Bruce had no relation to the CORT business. Instead he was an airplane broker who in 1986 had sold an aircraft to Berkshire. Buffett had not even heard of the company. But he immediately printed its SEC filings and liked its business. Bruce then arranged a meeting between Buffett and Paul Arnold, CORT's CEO. Buffett liked Paul's management and the deal was stuck to acquire the company for $386 million in cash. CORT was officially bought by Wesco Financial services which is 80% controlled by Berkshire.

      As of today CORT is the nation's largest provider of rental furniture, accessories and related services in the “rent-to-rent” (as opposed to “rent-to-own”) segment of the furniture industry. CORT rents high-quality furniture to corporate and individual customers who desire flexibility in meeting their temporary office, residential or trade show furnishing needs, and who typically do not seek to own such furniture. In addition, CORT sells previously rented furniture through company-owned clearance centers, thereby enabling it to regularly renew its inventory and update styles. CORT's network of facilities (in 34 states, the District of Columbia and the United Kingdom (the "U.K") comprises 85 showrooms, 75 clearance centers and 81 warehouses, as well as thirteen websites, including www.cort.com. CORT's rent-to-rent business is differentiated from rent-to-own businesses primarily by the terms of the rental arrangements and the type of customer served. Rent-to-rent customers generally desire high-quality furniture to meet temporary needs, have established credit, and pay on a monthly basis. Typically, these customers do not seek to acquire the property on a permanent basis. In a typical rent-to-rent transaction, the customer agrees to rent furniture for a minimum of three months, subject to extension by the customer on a month-to-month basis. By contrast, rent-to-own arrangements are generally made by customers lacking established credit whose objective is the eventual ownership of the property. These transactions are typically entered into on a month-to-month basis and may require weekly rental payments.

      US LIABILITY INSURANCE: This was the company engaged in writing unusual risks. Ron Ferguson of Gen Re introduced Buffett to Bob Berry. Buffett met him and agreed on half cash and half stock deal.

      BENBRIDGE JEWELER: Barnett Helzberg from Helzberg Diamonds was friends with Ed Bridge who with his cousin Jon was managing Ben Bridge Jewelers. Ed Bridge wanted his business to reside in such a place that would guarantee its tradition. So Berkshire was his first choice. He called Buffett and explained his business. Buffett liked it and the deal was done half stock and half cash.

      Justin Industries This was the largest maker of western boots and also had a brick company called Acme. Acme the larger of the two business made 1 billion bricks in the year 2000 with 11% of market share in USA. Interestingly Acme's website is called http://www.brick.com John Justin, the majority shareholder of the company was having health issues and wanted to retire. He wanted a safe anchor for his prized company. Buffett came to know about this opportunity from a stranger named Mark Jones. Pretty soon the deal was finalized and Berkshire bought Justin for $570 million cash.

      Shaw Industries Bob Shaw, CEO of Shaw industries ?world's largest carpet manufacturer first approached Buffett for a large insurance, because Saw was planning for a merger with another company that had huge asbestos liabilities from past. He could not get what he was looking for. But while the talks were going on, Buffett liked what he saw in Shaw industries. So Buffett offered to buyout Shaw and the deal was struck.

      Benjamin Moore paint Buffett knew Bob Mundheim, a director of Benjamin Moore from Salomon where he was a general counsel during Salomon's crisis. So when Bob came for an offer about Benjamin Moore, Buffett was immediately interested. In August of 2000 Buffett and Charlie met its CEO and made a $1bn offer on the spot. In December the transaction was closed. The company has been in paint business since 1883.

      JOHNS MANVILLE: It's the leading producer of commercial and industrial insulation and also has major positions in roofing systems and a variety of engineered products. Even though the company was highly profitable, but because of its asbestos related liabilities it had to declare bankruptcy in 1982. The bankruptcy court established a trust for the victims, the major asset of which was controlling interest in the company. The trust wanted to diversify its assets so wanted to sell the business to LBO group. But as the LBO group could not obtain financing so the deal was called off. Following that Munger and Buffett approached the CEO and offered an all cash deal for $1.8billion.

      How Berkshire ended up with eight acquisitions in 2000 Two main economic factors contributed to this - Firstly many managers and owners foresaw near-term slowdowns in their businesses. Unlike most managers Buffett's time horizon is very broad. He rather prefers a long term bumpy 15% return than a short term smooth 12% return. Secondly In 2000 market for Junk bonds dried up. Thus it was difficult to re-finance them. Thus the players of Leveraged buyouts reduced their appetite for takeovers. Thus companies like Berkshire who had strong balance sheet became buyer's of choice.

      Mitek In the year 2001 Buffett received a packet that had some metal component in it. It was sent by Gene Toombs, CEO of that company giving the same of its main product, which was connector plate that was used in making roof Trusses. Gene also explained that its UK parent was looking for selling the company. Buffett after knowing about Mitek immediately knew that it was his sort of business. The company was priced at around $550million. Mitek's crew also wanted to participate in the deal. So each of the 55 people were allowed to invest $100,000 cash, some people also were given the chance to borrow if they didn't have the capital. Buffett admired their effort and called them as true owners. Because unlike stock options, this investment also had the downside risk, in other words if the business was not successful then they were in the hook for their $100,000 each.

      Fruit of loom The company fell prey for its highly leveraged business model. Thus it had to file for bankruptcy. In August 1955 Graham-Newman controlled Philadelphia and Reading Coal and Iron (P&R.), an anthracite producer that had excess cash, a tax loss carry-forward, and a declining business. At the time, Buffett had a significant portion of his limited net worth invested in P&R shares. P&R purchased the Union Underwear Company from Jack Goldfarb for $15 million. Union (though it was then only a licensee of the name) produced Fruit of the Loom underwear. The company possessed $5 million in cash. $2.5 million of which P&R used for the purchase. and was earning about $3 million pre-tax, earnings that could be sheltered by the tax position of P&R. $9 million of the remaining $12.5 million due was satisfied by non-interest-bearing notes; payable from 50% of any earnings Union had in excess of $1 million. Subsequently, Union bought the licensor of the Fruit of the Loom name and, along with P&R, was merged into Northwest Industries. Fruit went on to achieve annual pre-tax earnings exceeding $200 million. John Holland was responsible for Fruit's operations in its most bountiful years. In 1996, however, John retired, and management loaded the company with debt, in part to make a series of acquisitions that proved disappointing. Bankruptcy followed. John was then rehired, and he undertook a major reworking of operations. Before John's return, deliveries were chaotic, costs soared and relations with key customers deteriorated. While correcting these problems, John also reduced employment from a bloated 40,000 to 23,000. Thus turning around the fortunes of the company. Buffett could sense his secret sauce "Able management". But the creditors had lost faith in the business and wanted to be bailed out. Early in the Fruit of the Loom bankruptcy, Berkshire purchased the company's public and bank debt at about 50% of face value. This was an unusual bankruptcy in that interest payments on senior debt were continued without interruption, which meant Berkshire earned about a 15% current return. Their holdings grew to 10% of Fruit's senior debt, which probably ended up returning about 70% of face value. Through this investment, they indirectly reduced their purchase price for the whole company by a small amount.

      Berkshire's stock at the height of internet bubble The Great Bubble ended on March 10, 2000 (though the market did?t realize that fact until some months later). On that day, the NASDAQ hit its all-time high of 5,132. That same day, Berkshire shares traded at $40,800, their lowest price since mid-1997.

      BERKSHIRE ROCKED BY 9/11: 9/11 was the worst terrorism act on US soil. It killed over 3,000 people and had billions in damages in the form of collapse of World Trade centers. Even Berkshire was not spared with it. Buffett truly acknowledged the lack of its re-insurer Gen Re in planning for this disaster. Buffett also acknowledged that, on top of that Gen Re had also not appropriately reserved for its prior events. Gen Re in total lost $4.3bn in 2001.

      Berkshire Hathaway's investments 1997-2001 (All numbers in millions) except no of shares

      1997

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      49,456,900     $1,392.7     $4,414.0    
      The Coca-Cola Company
      200,000,000     $1,298.9     $13,337.5    
      The Walt Disney Company
      21,563,414     $381.2     $2,134.8    
      Freddie Mac
      63,977,600     $329.4     $2,683.1    
      The Gillette Company
      48,000,000     $600,000     $4,821.0    
      Travelers Group Inc.
      23,733,198     $604.4     $1,278.6    
      Wells Fargo & Company
      6,690,218     $412.6     $2,270.9    
      The Washington Post Company
      1,727,765     $10.6     $840.6    
      Others
      -     $2,177.1     $4,467.2    
      Total
          $7,206.9     $36,247.7    

      1998

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      50,536,900     $1,470     $5,180    
      The Coca-Cola Company
      200,000,000     $1,298.9     $13,400    
      The Walt Disney Company
      51,202,242     $281     $1,536    
      Freddie Mac
      60,298,000     $308     $3,885    
      The Gillette Company
      96,000,000     $600,000     $4,590    
      Wells Fargo & Company
      53,265,080     $392     $2,540    
      The Washington Post Company
      1,727,765     $11     $999    
      Others
      -     $2,683     $5,135    
      Total
          $7,044     $37,265    

      1999

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      50,536,900     $1,470     $8,402    
      The Coca-Cola Company
      200,000,000     $1,298.9     $11,650    
      The Gillette Company
      96,000,000     $600     $3,206    
      H&R Block, Inc
      15,999,200     $255     $715    
      Freddie Mac
      59,559,300     $294     $2,803    
      The Washington Post Company
      1,727,765     $11     $960    
      Wells Fargo & Company
      53,265,080     $349     $2,391    
      Others
      -     $4,180     $6,848    
      Total
          $8,203     $37,008    

      2000

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      151,610,700     $1,470     $8,329    
      The Coca-Cola Company
      200,000,000     $1,298.9     $12,188    
      The Gillette Company
      96,000,000     $600     $3,468    
      The Washington Post Company
      1,727,765     $11     $1,066    
      Wells Fargo & Company
      53,265,080     $319     $3,067    
      Others
      -     $6,703     $9,501    
      Total
          $10,402     $37,619    

      2001

      COMPANY
      No. OF SHARES     COST     MARKET    
      American Express Company
      151,610,700     $1,470     $5,410    
      The Coca-Cola Company
      200,000,000     $1,298.9     $9,430    
      The Gillette Company
      96,000,000     $600     $3,206    
      H&R Block, Inc.
      15,999,200     $255     $715    
      Moody's Corporation
      24,000,000     $499     $957    
      The Washington Post Company
      1,727,765     $11     $916    
      Wells Fargo & Company
      53,265,080     $306     $2,315    
      Others
      -     $4,103     $5,726    
      Total
          $8,543     $28,675    

      Finova Junk bonds In 2000 FINOVA had $11billion debt outstanding. Berkshire purchased 13% of it for two thirds of face value. It was expected that the company would go into bankruptcy, but Berkshire believed that the company's liquidation value would be greater than what it had invested. As default loomed in early 2001, Berkshire joined forces with Leucadia National corporation to present the company with a prepackaged plan for bankruptcy. The plan as subsequently modified provided that creditors would be paid 70% of face value (along with full interest) and that they would receive a newly-issued 7? note for the 30% of their claims not satisfied by cash. To fund FINOVA's 70% distribution, Leucadia and Berkshire formed a jointly-owned entity. mellifluently christened Berkadia. That borrowed $5.6 billion through FleetBoston and, in turn, re-lent this sum to FINOVA, concurrently obtaining a priority claim on its assets. Berkshire guaranteed 90% of the Berkadia borrowing and also has a secondary guarantee on the 10% for which Leucadia has primary responsibility. There was a spread of about two percentage points between what Berkadia pays on its borrowing and what it receives from FINOVA, with this spread flowing 90% to Berkshire and 10% to Leucadia.

      © 1996- The Buffett