Why Is Warren Buffett Taking An $8 Billion, One Year Loan?

What’s up with Warren Buffet taking out an $8 billion, 1 year loan to finance the acquisition of Burlington Northern Santa Fe?

According to media reports, the loan was arranged by JP Morgan Chase and Wells Fargo. Burlington will pay an interest rate of 100 to 200 basis points above LIBOR. With Libor down at 0.27 per cent, that’s pretty cheap money.

So why didn’t Buffett try to lock it in for longer?

“The best I can figure is that Buffett is expecting to cash out of other positions to pay down the debt and that he is using the short-term loan as a bridge while he liquidates his other positions,” Rob Wenzel at Economic Policy Journal writes.

What are your thoughts?

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.