Last week, Warren Buffett put $2 billion of Berkshire Hathaway’s cash to work by buying high-yield bonds issued by Dallas-based power producer TXU Corp.
Berkshire(NYSE:BRK) bought into two bond issues by TXU. One was a $1.1 billion purchase of 10.25% bonds at 95 cents on the dollar to give Buffett an effective yield of 11.2%. Berkshire also bought $1 billion of 10.5% PIK-toggle bonds (bonds whose interest can be paid out in cash or more bonds) for 93 cents on the dollar, giving an effective yield of 11.8%.
Back in 2002, Berkshire had actually purchased stock in TXU when it appeared close to bankruptcy, and then sold out at a large profit in 2004.