Buffett’s Berkshire Agrees to Purchase Tiffany Bonds

Warren Buffett’s Berkshire Hathaway Inc. agreed to buy $250 million of debt in a private sale from Tiffany & Co., the world’s second-largest retailer of luxury jewelry.

The bonds will pay 10 percent annually, about one percentage point more in interest than yields for the lowest tier of investment-grade company debt, according to Merrill Lynch & Co. data. Half of the debt Tiffany is selling to Berkshire will mature in 2017 and the rest two years later, according to a filing with the U.S. Securities and Exchange Commission.

The global credit crunch has caused some of the firms that typically compete with Berkshire for deals to pare back on buying corporate debt and equity. That has allowed Berkshire to command atypical returns from companies that need its capital or want to reassure shareholders with an endorsement from an investor of Buffett’s renown.

“Retail is certainly not a sector that people are clamoring for right now,” said Martin Fridson, chief executive officer of Fridson Investment Advisors in New York. “There is a certain amount of high-yield financing coming, but it’s been fairly selective from both a quality and an industry standpoint,” he said today in a telephone interview.

Tiffany said last month that its holiday sales dropped 21 percent as wealthy consumers reduced spending amid the global financial crisis.

Tiffany fell 39 cents to $20.18 in New York Stock Exchange composite trading. Through yesterday, the shares dropped 13 percent this year after tumbling 49 percent in 2008.

‘Attractive’ Option

Most of the proceeds will be used to refinance maturing debt, including a short-term bank credit line, said Mark Aaron, a Tiffany spokesman.

“We’ve considered various options, but we felt this was attractive,” Aaron said today in a telephone interview.

Tiffany has no public debt outstanding, Aaron said. The company also has no credit ratings.

Tiffany’s 10 percent interest rate compares with an average yield of 8.98 percent for companies rated “BBB” by Standard & Poor’s, the lowest tier of investment-grade quality, and 13.08 percent on average for “BB-rated” company debt, which is one tier below investment quality, according to Merrill Lynch & Co. data.

Buffett agreed to buy a combined $750 million in debt from wallboard manufacturer USG Corp., motorcycle-maker Harley- Davidson Inc. and Sealed Air Corp., the maker of Bubble Wrap shipping products, in the past three months paying between 10 and 15 percent.