Finance History | USG — Berkshire's 10% Convertible Rescue Capital

At USG Corporation's 550 West Adams Street headquarters in Chicago, the building-materials maker agreed on November 21, 2008 to sell Berkshire Hathaway US$300 million of contingent convertible senior notes as housing construction and credit markets contracted together. Fairfax Financial agreed to buy another US$100 million, creating a US$400 million financing package of notes due in 2018 that initially paid 10% interest per year. The proposed conversion price was US$11.40 per USG share, but issuing the potential share count required stockholder approval under exchange rules, so the contract made the coupon jump to 20% if approval was not obtained within 135 days after closing and remain there until approval arrived. That penalty linked the financing's cost to corporate-governance execution: investors received rich current income while waiting, yet the company had a strong economic incentive to secure the vote needed to make the equity option effective. Berkshire was already a major USG shareholder after supporting the company's 2006 rights offering, so the 2008 notes protected an existing investment while adding a senior contractual claim and the possibility of acquiring substantially more common stock at a preset price. USG reported US$30 million of annual interest expense on Berkshire's US$300 million holding in 2010 through 2012, matching the stated 10% coupon and illustrating the cash burden that emergency capital imposed even after the shareholder condition was satisfied. The bargain captured Berkshire's crisis advantage without guaranteeing success: USG gained long-dated liquidity from patient investors, while Berkshire accepted concentrated exposure to a deeply cyclical company whose wallboard demand, leverage, and equity value remained tied to a damaged construction market. The cover photograph shows USG's headquarters at 550 West Adams Street, the principal executive address in its 2008 filing; Cpowills photographed the building in 2017, and the image is reused under CC BY-SA 4.0 via Wikimedia Commons.