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Berkshire, Leucadia Join Forces to Bail Out Finova

Financial services: A $6-billion loan will give them control of firm after bankruptcy restructuring.

February 28, 2001|From Times Wire Services

NEW YORK — Warren Buffet's Berkshire Hathaway Inc. said it will partner with Leucadia National Corp. to take control of struggling Finova Group Inc. as the financial services company prepares to declare bankruptcy.

Berkshire and Leucadia, an investment firm, agreed Tuesday to lend Finova $6 billion as part of a plan that will give the two firms 51% ownership of Finova after a planned bankruptcy restructuring.

Before being halted, Finova's shares (ticker symbol: FNV) were trading at 96 cents on the New York Stock Exchange. The price has plummeted from $32 last year.

It isn't clear whether Finova's current shares will have any value after bankruptcy.

Scottsdale, Ariz.-based Finova, heavily in debt itself, has been hit by defaults on loans it made to various mid-size businesses. Many of its troubles started last March, with the announcement of a large loan write-off and the surprise departure of its chairman and chief executive, Samuel Eichenfield.

Finova said it plans to file soon for reorganization under Chapter 11 bankruptcy proceedings and issued a moratorium on repayments of principal on its outstanding bank and bond debt.

The firm said it would use the proceeds of the Berkshire/Leucadia loan to pay down debt. Finova has about $4.7 billion in bank debt and $6.6 billion in bond debt, according to a recent filing with the Securities and Exchange Commission.

"This is exactly what [Buffett] does," said Henry Asher, president of the Northstar Group, which owns Berkshire Hathaway and Leucadia shares. "It's understanding a poorly structured financial company where capital can make a difference."

The deal marks Buffett's second move this year to bail out a struggling company. Berkshire Hathaway bought Johns Manville Corp., a construction materials maker buckling under the weight of asbestos-related litigation.

The deal marks New York-based Leucadia's second stab at Finova. In November, Leucadia agreed to inject $350 million into Finova, but the deal was called off in January.

Investment bank Goldman Sachs Group and GE Capital, the financial services unit of General Electric Co., were reportedly poised to invest about $2 billion in Finova.

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Reuters and Bloomberg News were used in compiling this report.

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