Warren Buffet boosting stake in USG

CHICAGO - Building materials supplier USG Corp. said Friday it plans to raise $400 million by selling convertible notes, most of which will be bought by Warren Buffett's Berkshire Hathaway Inc.

Berkshire agreed to buy $300 million of USG's 10 percent contingent convertible senior notes due 2018 and Toronto-based Fairfax Financial Holdings Ltd. will buy the rest, USG said.

Assuming USG shareholders give their approval at a meeting in the first quarter of next year, the notes will convert into shares of USG common stock at a conversion price of $11.40 per share.

If shareholder approval is not obtained prior to the 135th day after closing of the sale of the notes, the notes will bear interest at 20 percent per annum until after shareholder approval is obtained.

Berkshire, which holds a 17 percent stake in USG, and Fairfax, which recently became a shareholder, will vote for the proposal to permit conversion of the debt into equity. The date of the shareholder meeting has yet to be determined.

USG aims to apply proceeds of the notes sale toward a partial repayment of amounts outstanding under its unsecured credit agreement.

"This transaction provides USG with long-term capital that significantly improves our financial flexibility as we manage through the steep recession in our primary markets," Chief Executive William C. Foote said in a statement.

Shares jumped $1.09, or 19.3 percent, to $6.75 in morning trading. The stock has traded between $5.50 and $40.25 over the past year, and is off 84 percent since January.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.