Warren Buffett to CNBC: I Like Just TXU's Junk Bonds, Not Junk Bonds in General

Lm Otero

A TXU sign is shown in downtown Dallas, Monday Feb. 26, 2007. TXU Corp., Texas' largest electricity producer, said it has agreed to be sold to a group of private-equity firms for about $32 billion in what would be the largest private buyout in U.S. corporate history if shareholders and regulators go along. (AP Photo/LM Otero)

CNBC Squawk-Box co-anchor Becky Quick scored a scoop early this morning with her 'First on CNBC' report that Warren Buffett's Berkshire Hathaway is paying $2.1 billion dollars to Goldman Sachs for some high-yielding (aka "junk") TXU bonds. That debt had been issued as part of the $45 billion deal in which Kohlberg Kravis Roberts took the Texas utility private earlier this year. (The purchase is also being reported today by Fortune's Peter Eavis.)

But everyone should pay very close attention to this exclusive portion of Becky's report:

The billionaire investor tells me that these TXU bonds are the only junk bonds he's interested in at the moment. Not First Data bonds, not Alltel.

In fact, Buffett tells me that he thinks some of the recent issues give new meaning to the word 'junk'.

This is definitely not an "endorsement of the junk bond market overall." It is a sign in confidence in TXU in particular, and perhaps the utilities business in general. That's in keeping with the general Buffett strategy of buying individual companies because their stock or debt is undervalued, not putting big bets on entire sectors or markets.

Another aspect of Becky's report is also quite interesting. She says that some other big names on Wall Street had already passed on the opportunity to buy these bonds from Goldman. That's because Goldman has come through the subprime mess with flying colors, and there's a general sense that Goldman's desire to sell is a sign it lacks confidence in them. Given Goldman's recent stellar record, "no one wants to wind up looking silly if they bet against Goldman and the bonds drop."

No one, that is, except for Warren Buffett. Since he generally buys for the very long-term, he may not be as worried as Goldman about a potential short-term drop in the value of the bonds.

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