Star News

February's credit yields demonstrated that the market perceives multi-billionaire Warren Buffett's Berkshire Hathaway, Inc., to be a lower investment risk than the United States Government. Typically, treasuries backed by the full faith, credit, and taxing power of the U.S. Government offer a lower return than corporate bonds due to the credit risk attributed to the government versus public corporations. The net yield for Berkshire Hathaway's two-year bond was 3.5 basis points lower than U.S. Treasury notes with the same maturity. Three other firms including Procter & Gamble, Lowes, and Johnson & Johnson also offered lower debt yields.

The inverse yield is an exceptionally rare occurrence in the history of the bond market. As $2.59 trillion of new U.S. debt hit the market since the first of the year, bond buyers are seeing a glut as the deficit has swelled to 10%; a post-World War II record. Increased borrowing may have a negative influence on economic recovery.

Moody's, the corporate bond valuation services company, predicted that the Treasury will spend more on servicing their debt as a percentage of revenue than most other top-rated countries. Only the U.K. will spend more on debt service as a percentage of income. America will use approximately 7% of tax revenue to service its debts this year, a ratio that is expected to grow to 11% by 2013. If prediction were to become reality, the U.S. may lose its AAA rating, increasing their cost of borrowing. We will keep you posted…

$6,350,000 Loan Quote on Two-Tenant Office Property

Penstar recently obtained a loan quote for the cash out refinance of a 100% occupied, 2-tenant office building in Los Angeles. The lender is offering a 65% loan to value quote at a fixed rate of 6.75% for 10 years with 25 year amortization. The borrower received additional quotes reflecting a 5-year term, choosing instead to lock-in a 10-year loan due to long term rate risk concerns. For more information, please contact Steven Hamermesh at (818) 883-9609 or Hamer@PenstarAdvisors.com.

Helpful Humor

The best antidote for those challenging transactions is to take a moment to have a hearty laugh. Helpful humor is our way of infusing laughter into your work-week

“A Violinist’s ‘Credibility’”

A violinist was auditioning for London’s prestigious Hallé orchestra for the 2010 concert season. Following his audition the conductor asked: “What do you think about Brahms?”

“Ah...” the violinist replied, “Brahms is a great guy; and a very talented musician.” “In fact,” he continued, “he and I were just playing some duets together last week!”

The conductor then asked “And what is your opinion of Mozart?”

“Oh, he's just swell! I had dinner with him only last week!” boasted the violinist; looking at his watch. “I'm afraid I must be going,” he said; “I need to catch the 1:30 train from the central station at Walthamstow.”

Later that evening, the conductor was discussing the young violinist with members of the orchestra's board of directors. “Admittedly, I am uneasy about our hiring this young man as I am afraid he is less than honest;” he confessed. He was in a desperate rush so as not to miss the 1:30 train from the central railway station.” The conductor continued, frowning, “I happen to know there is no such train out of London at 1:30.”