Warren Buffett to the rescue?

This week the billionaire investor helped clear the backlog of LBO-related debt. Amanda Janis examines the actions by the ‘Oracle of Omaha’.

Amanda Janis,
associate editor

One of private equity’s greatest critics, billionaire US investor Warren Buffett, played his part this week to assuage the hundreds of billions in unsyndicated leveraged buyout loans sitting on bank balance sheets. He also managed one more dig at the asset class and its underwriters.

On Monday, US financial television news station CNBC reported that Buffett’s Berkshire Hathaway had purchased more than $2 billion (€1.4 billion) in junk bonds from Goldman Sachs. He bought two tranches of debt issued for TPG’s and Kohlberg Kravis Roberts’ $45 billion buyout of Texas utility company TXU, now called Energy Future Holdings.

While that might lead one to believe that Buffett sees value in the underlying credit, and by extension is appreciative of the value added by private equity firms to a company’s operations, only the former is true. He’s a fan of the utility industry, but still leery of private equity.

Private equity firms shouldn’t feel too dejected – Buffett has criticised all professional managers of assets as little more than charlatans taking fees from investors to shuffle around what should have been left in place.

Indeed, Buffett is attracted to TXU’s paper not because of its private equity backers, but in spite of them. The so-called ‘Oracle of Omaha’ told CNBC he’s not interested in the paper related to Alltel, the telecom company being taken private by TPG and Goldman Sachs for $27.5 billion, nor the junk bonds linked to KKR’s $29 billion buyout of electronic payments firm First Data. Not only are TXU junk bonds the only ones he’s interested in, he told the cable news channel that some of the recent issues give new meaning to the word “junk”.

His disdain for the asset class, and now, apparently, its lenders, is well documented, despite his firm’s private equity-esque investments and that he now stands to profit from at least one of the industry’s landmark buyouts. Of course, Buffett seldom exits his positions, and so the comparison ends there.