Buffett says bought $4 bln of auction-rate debt

OMAHA: Warren Buffett on Saturday saidhis Berkshire Hathaway holding company bought $4 billion of auction-ratesecurities during the market's recent distress. Speaking at Berkshire's annualshareholder meeting, Buffett also said his new municipal bond insurer, BerkshireHathaway Assurance Corp, is becoming a major force, capturing higher premiumsthan rivals that have been strained by exposure to subprime mortgages.

The $330 billion market for auction-rate securities, which arelong-term bonds whose rates are reset periodically, froze this winter.

Investors flooded dealers with paper backed by bond insurers whomthey feared would lose their "triple-A" credit ratings. As a result, manymunicipal bond issuers were for several weeks forced to pay uncommonly highinterest rates.

Buffett spoke of how debt issued by the Los AngelesCounty Museum of Art fetched a 3.15 percent interest rate on Jan. 24, and 8percent just three weeks later.

He also said Berkshire has boughtauction-rate debt with an 11.3 percent rate from one broker, at the exact timeanother broker was offering a 6 percent rate.

"Those are hugedislocations in the market. That's crazy," Buffett said. "Those are great timesto make unusual amounts of money." He said, nonetheless, that Berkshire, whosemarket value is more than $200 billion, is so large that such investments won'thave a big impact on results.

Buffett also confirmed that the bondinsurer he created in December was rapidly increasing market share, having wonsome $400 million of business in the first quarter.

BerkshireHathaway Assurance has won "triple-A" ratings from Standard & Poor's andMoody's Investors Service.

While some rivals such as MBIA Inc and Ambac Financial Group Inc have also carriedthose ratings, Buffett said some market participants are willing to pay premiumsabove 2 percent. That's well above the 1 percent to 1.5 percent that those otherinsurers typically charge.

He also said almost all of the secondarybusiness came from issuers that already had insurance from rivals.

"It tells you something about the meaning of 'triple-A' in the bondinsurance field in the first quarter," Buffett said.

Buffett alsoconfirmed that in the primary market, Berkshire has insured nearly $400 millionof Detroit sewer and water disposal system bonds.

In addition, hepraised Ajit Jain, the Berkshire insurance executive who has overseen thedevelopment of the bond insurer. Many analysts and investors have said Jain is atop candidate to eventually succeed Buffett as Berkshire's chief executive."Ajit has done a remarkable job in this area," Buffett said. "It's prettyremarkable, and I congratulate him for it."

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