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  • starfe11 starfe11 Feb 22, 2013 11:41 PM Flag

    Warren Buffett backs debt to build Texas Nebraska Furniture Mart


    Those question can asked just by relating them to me....

    FEBRUARY 09, 2013 11:45 PM
    DALLAS — A local development agency sold $106.9 million of taxable securities Wednesday for The Colony, a city north of Dallas, to finance construction of a Nebraska Furniture Mart the company says will be the nation's largest home furnishings store.

    The venue, anchoring a $1.5 billion retail development, will be the third full-line store for the chain, owned by Warren Buffett's Berkshire Hathaway Inc. The other two are in Omaha and Kansas City, Kan. The company also has a builder showroom in Des Moines.

    Ground was broken in September. The furnishings seller is investing about $250 million, according to bond documents. The store is expected to generate annual revenue of about $600 million and lure 8 million visitors. The development includes the 1.86 million-square-foot Nebraska Furniture Mart of Texas and a distribution center, encompassing the equivalent of 40 football fields. Plans call for expanding the site, called Grandscape, with more stores, restaurants, entertainment venues and a hotel. Nebraska Furniture Mart is the developer of record.

    Another of Buffett's companies provided the repayment guarantee on a portion of the debt, Buffett's first guarantee on a municipal bond since 2009. It showed that the billionaire's imprimatur can help sell even the riskiest debt to investors hungry for income with debt yields at a generational low.

    "Everyone came to Warren's party," said Patrick Morrissey, who helps oversee about $3 billion in fixed income at Great Lakes Advisors in Chicago and said he placed an order for some of the debt. "Here was a name that was new to the market and a chance to grab a little extra yield."

    The debt is backed by Berkshire Hathaway Assurance Corp. The offer is called "speculative" in bond documents because it depends on tax revenue from the project, which is not slated to open until 2015.

    Still, with Buffett's company involved and muni yields close to four-decade lows, the securities drew enough bidders that underwriters lowered yields 0.05 percentage point from initial levels, Morrissey said.

    By buying these so-called dirt bonds, which are sold for real estate developments, investors are wagering on Texas's improving finances and a strengthening national economy. An oil and natural gas boom in Texas is helping the largest U.S. energy producer pile up a record $11.8 billion in reserves.

    The tendency for default among land-secured debt highlights the risk in the segment. Defaults in such bonds made up about half of all cases in the 12 months through January, according to data from Municipal Market Advisors in Concord, Mass.

    Investors were compensated as a consequence. Insured bonds maturing in 2047 priced at yields about 1.70 percentage points over benchmark Treasuries, data compiled by Bloomberg show. That compares with a yield spread of about 1.40 percentage points on average for corporate debt with a AA rating and due in more than 15 years, according to Bank of America Merrill Lynch data.

    "Investors expect significant yields," Chris Mier, managing director with Loop Capital Markets in Chicago, said in an interview before the sale. "It's got raw land development, so it's got to work or you're not going to get paid."

    Additional segments of bonds are being offered by entities tied to The Colony, with about 38,000 residents 27 miles north of Dallas. The store is expected to create 2,000 jobs. Over 40 years, the project also will generate $9.5 billion of new state and local tax revenue, according to a feasibility study included in bond documents.

    "We worked this deal extensively," said Mark Curran, a managing director with Minneapolis-based Piper Jaffray Cos., the lead underwriter. "I won't say it was an easy sale. It was a challenge to get the story out there. But in the end, it was fully subscribed."

    The city isn't directly issuing or backing the debt but agreeing to let tax revenue from the development repay bondholders.

    Buffett's insurer entered the muni market in 2007 as companies such as Ambac Financial Group and MBIA Inc. were cutting back amid rating cuts tied to subprime mortgage business. His company then backed out as local finances deteriorated.

    The decision to re-enter the market with a dirt bond surprised Richard Larkin, a senior vice president with Herbert J. Sims & Co. in Iselin, N.J.

    The company could have "made money hand over fist" if it had not abandoned the industry in 2009, he said. Only one other insurer, Assured Guaranty Ltd., remained in a market where half of new bonds once had been insured.

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    • A really sad day for the property owners and residents of the Colony. The infrastructure cost and the shortfall in bond payments will fall upon them. The number of people to just open the store will combined with the operating cost of the building to eventually cause them to down size the retail area after loosing millions. How much poor quality wood chip, softwood and micro-veneer furniture from third world countries will they be able to sell at higher than normal prices before the public learns they can buy it from amazon for less. Warren will be able to make money in his other companies by handling the financing of the furniture, but this will not stop the residents of Colony from being forced to pay the shortfall. I suppose it is easier to believe in "bigger is better" when you are using shareholders and municipal bond holders money to pay for your senile fantasy. Warren should stick to buying stock of well managed companies where his contract HFT manipulators have driven the share price into the toilet.

    • plus Bud I can get you any furnishing your hearts desires at discount you'll never get anywhere else on the planet. On the day Warren hold his annual meeting with shareholders Irv closes the store to just shareholders and books over 30 mill in 1 day of sales

      its unheard of but since everyone shopping is a millionaire its kind of easy

      come and join in May for the weekend party. Irv has his guest list and its fun food and shopping for 2 straight days. & you dont even have to buy anything.

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