For Warren Buffett, could motorcycle maker Harley-Davidson be one that got away? It makes for a tantalizing proposition, at least if you are a Berkshire Hathaway shareholder, a proposition that under one scenario would have been worth more than a billion dollars to the Buffett-led conglomerate based in Omaha.
It goes like this: In 2009, Omaha’s Berkshire Hathaway lent Milwaukee-based Harley-Davidson $303 million over five years by buying unsecured notes issued by the manufacturer — essentially, a loan. The maker of street bikes was in a cash crunch as the recession deepened.
The interest rate charged by Berkshire Chairman and Chief Executive Buffett? A juicy 15 percent. While the exact repayment terms and schedules aren’t known, on a yearly lump payment at a standard interest-and-principal paydown, the loan would have yielded Berkshire lending income of about $150 million when it was all over.
But what if Berkshire had insisted upon what Wall Street calls an “equity kicker”? That means shares in the company, maybe even preferred ones such as the ones Berkshire owns in Bank of America that come with a special dividend and the right to convert to common shares at an enormous profit on a later date.