A decision by Warren Buffett’s Berkshire Hathaway Inc. to end a large wager on the municipal-bond market is deepening questions from some investors about the risks of buying debt issued by cities, states and other public entities.
The Omaha, Neb., company recently terminated credit-default swaps insuring $8.25 billion of municipal debt. The termination, disclosed in a quarterly filing with regulators this month, ended five years early a bullish bet that Mr. Buffett made before the financial crisis that more than a dozen U.S. states would keep paying their bills on time, according to a person familiar with the transaction.
The insurance-like contracts, which required Berkshire to pay in the event of bond defaults, were originally purchased by Lehman Brothers Holdings Inc. in 2007, more than a year before the Wall Street firm filed for bankruptcy, the person said.
Details of the termination, with the Lehman Brothers estate, weren’t disclosed. It isn’t clear whether Berkshire’s move will leave the company with a profit or loss on the wager. Mr. Buffett, Berkshire’s 81-year-old chairman and chief executive, declined to comment.
Some investors said the decision to end the bet indicates that one of the world’s savviest investors has doubts about the state of municipal finances. If so, the move could be a warning to investors who have purchased such debt. In canceling the contracts early, Mr. Buffett probably “doesn’t want this exposure anymore and is getting out while he can,” said Jeff Matthews, a hedge-fund manager who personally owns Berkshire shares.
- Warren Buffett Cancels A Municipal Debt Bet 5 Years Early (businessinsider.com)
- Buffett cancelled municipal debt bet 5 yrs early -WSJ (uk.reuters.com)