Warren Buffett Profits As Nasty Hurricane Season Spares Florida
The 2008 Atlantic Hurricane Season produced eight hurricanes. Five of them were "major" storms, hitting Category 3 strength or higher.
But none of those hurricanes hit Florida.
That's good news both for residents of the state and for Warren Buffett, who lives roughly 1600 miles northwest of Miami.
Bloomberg reminds us that before the hurricane season began, Florida paid Berkshire Hathaway what amounts to a $224 million dollar 'hurricane insurance' premium.
In exchange for that $224 million, Berkshire agreed to loan Florida $4 billion .. if a state hurricane fund suffered $25 billion in losses before the end of the year.
No big hurricane losses, so no loan, and Berkshire pockets the $224 million.
The loan would have involved Berkshire buying 30-year bonds paying 6.5% a year, so it wasn't necessarily going to be a money-losing proposition for Buffett & Co.
But given the tight credit conditions, Florida was worried it wouldn't find anyone willing to take on the risk, especially if the state had just been hit by an especially destructive storm.
A Florida government spokesman tells Bloomberg, "It would've been difficult to issue bonds in this environment, so I do think it ended up working out well for everyone involved. We were fortunate to have a mild hurricane season."
As we noted back in July, (Florida Politicians Hold Their Noses and Pay Buffett's Berkshire $224 Million for Hurricane Pledge), the deal wasn't especially popular around Tallahassee at the time.
Attorney General Bill McCollum: "This is not a good thing in my opinion, but I'm supporting it because it is the only responsible choice at the moment."
Chief Financial Officer Alex Sink: "We are being held hostage by only one product ... Warren Buffett did not become a multibillionaire by not doing good deals for himself. We've got both hands tied behind our back."
Will Florida go back to Buffett in 2009? The Florida spokesman tells Bloomberg the state will evaluate its options before the next storm season begins in June.
Presumably, it hopes Buffett won't be its only option.
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