Fitch cuts Berkshire Hathaway ratings on BNSF deal
(The Associated Press circulated the following on February 11, 2010.)
CHICAGO Fitch Ratings on Wednesday cut its key rating of Berkshire Hathaway Inc. two notches within investment-grade territory, citing risks that Warren Buffett's company is taking on in acquiring Burlington Northern Santa Fe Corp.
Fitch also cut its rating of the company's Berkshire Hathaway Finance Corp. unit, and trimmed ratings of the conglomerate's insurance subsidiaries.
Fitch downgraded Berkshire Hathaway's issuer default rating two notches to ''AA-'' from ''AA+,'' but kept the rating at a level signifying ''very high'' credit quality. Companies with ''AA'' ratings are at low risk of default, but carry slightly higher risks than companies rating at the top-rung of ''AAA.''
Fitch also cut the finance unit's rating to ''AA-'' from ''AA+,'' and cut its ratings on the unit's senior unsecured notes to ''A+'' from ''AA.'' The agency also cut the financial strength ratings of Berkshire Hathaway's insurance subsidiaries to ''AA+'' from ''AAA.''
The cuts conclude a ratings review Fitch began in November after Berkshire Hathaway announced plans to acquire the rest of the Burlington Northern Santa Fe shares that it didn't already own. Berkshire Hathaway, based in Omaha, Neb., is acquiring the remaining 77 percent of the railroad's shares in a transaction expected to close on Friday. The acquisition will be the biggest ever for Buffett's holding company.
Fitch said it cut the ratings because Berkshire Hathaway is shifting its asset profile toward businesses that have lower credit quality and less liquidity than the insurance operations and stock investments that Berkshire Hathaway has traditionally emphasized. Fitch cited the Burlington Northern acquisition and investments Berkshire Hathaway has made in utilities, energy and finance company subsidiaries.
''These businesses use more financial leverage and often have greater sensitivity to general economic conditions,'' Fitch said.
Financing that Berkshire Hathaway is using in the Burlington Northern deal ''is expected to result in a meaningful increase in financial leverage,'' Fitch said.
The agency said the downgrades also reflect its ''ongoing concerns'' over Berkshire Hathaway's stock market exposure through the company's investment portfolio.
Berkshire's Class B shares fell 5 cents to $74.48 in afternoon trading.
