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Berkadia

Berkshire Hathaway Becomes a Leader in Loan Servicing

(BRK.A), (BRK.B)

Founded in 2009 as a 50/50 joint venture with Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA. The company was among the top Freddie Mac and Fannie Mae multifamily lenders for 2013.

Berkadia’s Origin

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

The Joys of Loan Servicing

So, what is commercial loan servicing and why is it so valuable?

Commercial loan servicers handle the administration of a loan from its origination until the time it is paid off. In this role the servicer collects and disperses mortgage payments, insurance premiums and property taxes. While the mortgage payments are disbursed to the mortgager, the insurance premiums and property taxes are held in escrow until payment is due.

In the case of loan servicing, the role is strictly fiduciary and does not place risk of loss on the servicer. Disbursement are governed by the calendar rather than by the vagaries of an insurance company’s rising and falling claims.

Huge Portfolios

According to Morningstar Credit Ratings, in the case of Berkadia, as of June 30, 2013, the total primary and master serviced portfolio stood at $253.4 billion. In short, the size of the market is enormous, and the fees, collected month by month on mortgages are regular as clockwork.

The Future

Future Berkshire growth in debt servicing can come not only from increases in portfolio size, but from possible acquisition of additional percentages of ownership in Berkadia. For example, Berkshire’s ownership in GEICO was incremental and the company did not achieve 100% ownership until 1996.

Berkadia offers Berkshire shareholders another opportunity for growth with Leucadia doing much of the heavy lifting.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Todd Combs and Ted Weschler

AT&T Acquisition of DirecTV Means Windfall for Berkshire Hathaway

(BRK.A), (BRK.B)

Whether AT&T’s newly announced $48.5 billion acquisition of DirecTV is ultimately good for both parties is uncertain, but one thing that is certain, is that it means a huge windfall for Berkshire Hathaway.

Berkshire reported owning 34.5 million shares of DirecTV as of March 31, 2014, and those shares were purchased at roughly half the tender price of $95 per share being offered by AT&T.

A Windfall for Berkshire

At the $95 share price, Berkshire’s holdings will be worth at least $3.27 billion, provided that it did not accumulate any additional shares after March 31.

A Winner for Todd Combs and Ted Weschler

Berkshire’s DirecTV stake was purchased by Todd Combs and Ted Weschler, as a part of portfolios they manage on behalf of the company.

Combs and Weschler each manage $7 billion portfolios, and have seen the amount of money under their supervision increased significantly in the past two years as Warren Buffett has grown more confident in their approaches.

Both stock pickers beat the S&P 500 in 2013. 2014 looks to be a very good year as well.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Categories
Acquisitions Berkshire Hathaway Energy

Berkshire Hathaway Makes Aggressive Move into Canadian Energy Market

(BRK.A), (BRK.B)

With the recently announced acquisition of AltaLink, Berkshire Hathaway’s newly christened Berkshire Hathaway Energy has made an aggressive move into the Canadian energy market.

New Canadian Beachhead Strategy

Under the moniker MidAmerican Energy, the company’s previous Canadian energy plays consisted of joint ventures where the other partners took the lead. Now, as Berkshire Hathaway Energy, the company is going out on its own to become a leader in the growing markets of Calgary and Edmonton, Alberta. It’s a move that will have BHE serving 85% of the population.

In acquiring AltaLink from SNC-Lavalin Group Inc. (TSX:SNC), BHE will take possession of 12,000 kilometers of transmission lines and 280 substations that bring electricity to 3 million Albertans. The total cost of the acquisition is C$3.2 billion, approximately US$2.9 billion.

Warren Buffett has long been known for a buy-and-hold acquisition strategy that places an emphasis on finding companies with top-flight management that is kept in place. Similarly, Berkshire Hathaway Energy, under the direction of chairman, president, and CEO Greg Abel, has the same philosophy. AltaLink’s management will remain headquartered in Calgary, and it will continue to operate as a local, independent company.

Employing the Berkshire Strategy

Also in keeping with another of Buffett’s strategies, Abel’s goal is to buy assets that will be owned forever.

It’s a sizeable acquisition as AltaLink had assets of C$5.9 billion as of December 31, 2013, and generated revenues of C$534.1 million in 2013.

Is this just another acquisition in BHE’s portfolio, or does it represent additional focus on the Canadian energy market?

Apparently, both.

On one hand, it’s a natural move for BHE’s combination of regulated utilities and infrastructure companies that span the U.S. and reach as far as the U.K. and the Philippines. But there’s reason to expect more. Greg Abel hails from Edmonton,  he knows Alberta’s power demands are only going to grow, and he sees AltaLink as a beachhead acquisition.

Alberta’s Growing Power Needs

Industry leaders are already calling for more than 9,400 MW of new thermal power and more than 3,000 MW of new renewable power to fuel future development in Alberta.

Under Abel’s direction, BHE has been growing dramatically, including last year’s purchase of NV Energy that brought 1.3 million customers in Nevada under its wing. In total, BHE has amassed a $70 billion portfolio of energy companies that produced $12.6 billion in revenues in 2013.

A Future Berkshire Leader?

At the youthful age of 51, Greg Abel is often mentioned on the short-list of Buffett successors. He also sits on the board of directors of H.J. Heinz Company board of directors–Berkshire Hathaway’s biggest acquisition since BNSF Railway was acquired in 2010. It’s no surprise his name is on people’s lips, considering BHE’s high-powered growth strategy that has no end in sight. And the Canadian energy market may just be where that strategy leads.

© 2014 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.