NEW YORK, Dec 3 (Reuters) - By Dena Aubin
Reports that Warren Buffett's Berkshire Hathaway (BRKa.N: Quote, Profile , Research) bought $2.1 billion of TXU Corp's junk bonds gave the utility's debt a boost but may not inspire copy-cat moves into other junk bond issues.
TXU, now called Energy Future Holdings, sold $3.75 billion of bonds last week through its Texas Competitive Electric Holdings unit to help repay debt used for its Oct. 10 leveraged buyout.
CNBC reported on Monday that Berkshire Hathaway bought $1.1 billion of TXU's 10.25 percent (cash-pay) bonds and $1 billion of its 10.5 percent pay-in-kind toggle notes. A spokesman for Berkshire Hathaway could not be reached for comment.
"It probably should help TXU bonds because you've obviously got a strong holder and somebody who's considered a very astute investor buying their paper," said Robert Grimm, co-head of the high-yield group at J. Giordano Securities in Stamford, Connecticut. "But it doesn't help the rest of the world."
Buffett told CNBC that the TXU bonds are the only junk bonds he is interested in at the moment, adding that some recent issues give new meaning to the word "junk."
TXU's bonds were little changed on Monday but had risen on Friday on rumors of a major investor being involved in the deal, a trader said.
TIMING GOOD FOR VALUE BUYERS...
TXU's 10.25 percent cash-pay notes, issued at 95 cents on the dollar, were quoted around 96.5 cents on Monday, while the 10.5 percent pay-in-kind notes, issued at 93.35 cents, were quoted at 95.5 cents.
"I'm sure he (Buffett) did a lot of work on their liquidity and underlying business," said Mirko Mikelic, portfolio manager for Fifth Third Asset Management in Grand Rapids, Michigan. "I'm sure that's going to bring more people to TXU bonds."
The bonds fit Buffett's value investing style because their prices were dented by recent credit scares, yet the utility sector should hold up relatively well if the economy goes into a recession, strategists said.
"It is probably a good time for value people because there have been a lot of names that have been hammered out there across the board," said Mikelic.
Buffett called the move a bet on the utility business because of Berkshire Hathaway's familiarity with the sector, CNBC reported.
NONTRADITIONAL BUYERS STEP IN
Buffett's interest in TXU has helped underwriters clear the remaining part of an $11.25 billion high-yield bridge, or temporary financing used for its leveraged buyoud. Underwriters offloaded the first part of the debt in October with a $7.5 billion junk bond sale, the largest ever by a U.S. company.
"It's just another indication that there's lot of nontraditional buyers in the leveraged asset class looking for the right price to come in," said Kingman Penniman, president of high-yield research firm KDP Investment Advisors.
Like the TXU issue, several other large junk bond sales were prompted by so-called "reverse inquiries," or interest expressed from one or a handful of large investors, Penniman said.
While many traditional high-yield buyers have balked at bond financings for LBOs, knockdown prices on the issues have tantalized some large investors, especially for the riskiest and highest-yielding portions.
Alltel, First Data Corp, Biomet and Dollar General all sold at least part of recent debt deals on reverse inquiry, including some subordinated or pay-in-kind notes, according to KDP.
Buffett has made high-profile moves into junk bonds before.
In December 2000, reports that Berkshire Hathaway had scooped up discounted bonds of Finova Group Inc. sent the finance company's stock soaring 36 percent.
"Berkshire has a long history of value investing," said Philip Adams, analyst for independent research service Gimme Credit. "If Berkshire thinks a situation is viable, and it can get an extraordinary return on an investment, it will step up." (Additional reporting by Edward Tobin; editing by Leslie Adler)
