Fitch Places Berkshire Hathaway on Rating Watch Negative

November 5, 2009 1:20 PM EST

CHICAGO & NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has placed the ratings of Berkshire Hathaway Inc. (NYSE: BRK) and the ratings of BRK's insurance subsidiaries on Rating Watch Negative (see full list of ratings below).

The rating actions follow BRK's Nov. 3, 2009 announcement that it has entered into a definitive agreement with Burlington Northern Santa Fe Corporation (NYSE: BNSF) under which BRK will acquire the 77% of BNSF shares it does not already own in exchange for cash or BRK shares. BRK expects the acquisition, which requires approval by holders of two-thirds of BNSF's outstanding shares and the Department of Justice, to close in the first quarter of 2010.

Fitch's decision to place BRK's ratings on Rating Watch Negative reflects the agency's concerns about the transaction's effect on BRK's asset profile and capitalization. Fitch views the BNSF acquisition, along with BRK's investments in utilities and energy and finance company subsidiaries, as increasingly shifting the company's asset profile towards concentrated investments in operating subsidiaries that use more financial leverage and often have greater sensitivity to general economic conditions than the company's long-held insurance and holding-company equity oriented investments.

Historically, both BRK's and its insurance subsidiaries' very high ratings have benefited from the overall organization's investments in the comparatively highly-rated insurance sector and from non-controlling equity investments the organization's made in a wide variety of businesses that generated significant capital growth. Fitch believes that these rating benefits are coming under pressure at both the holding company and insurance operating company levels, as an increasing proportion of BRK's assets consist of solid, but comparatively lower credit-quality and less-liquid assets.

Fitch also believes that the BNSF acquisition is likely to result in a meaningful increase in BRK's financial leverage, especially on a tangible capital basis. The acquisition will be funded by $8 billion of debt financing and $8 billion of internal funds. Additionally, BRK is paying a premium of roughly $20 billion over BNSF's book value on June 30, 2009 so Fitch believes the transaction could materially increase the amount of goodwill on BRK's balance sheet. Additionally, BNSF has $10 billion of outstanding debt, and while Fitch believes that that this debt is likely to be funded by railroad operations, the agency views it as an incremental contingent call on BRK's cash flows and capital.

Fitch believes that the acquisition is likely to close as currently conceived by BRK and anticipates conducting further analysis of the transaction and its potential effects on BRK over the coming weeks. Thus, the agency expects to resolve its Rating Watch on BRK's and its insurance subsidiaries' ratings, prior to the transaction's close. Fitch's additional analysis will focus on:

--Assessing BNSF's credit-quality and its impact on BRK's credit profile;

--Evaluating the effect on the organization's leverage ratios of the incremental debt and investment concentrations derived from the transaction;

--Reviewing interest coverage ratios generated by BNSF and their effect on BRK's consolidated interest coverage ratios.

Fitch has placed the following ratings on Rating Watch Negative:

Berkshire Hathaway, Inc.

--Issuer Default Rating (IDR) 'AA+'.

Berkshire Hathaway Finance Corporation (BHFC)

--IDR 'AA+';

--$1.5 billion 5.11875% notes due Jan. 11, 2011 'AA';

--$1 billion 4.6% notes due May 15, 2013 'AA';

--$1 billion 5% notes due Aug. 15, 2013 'AA';

--$1.5 billion 4.125% notes due Jan. 15, 2010 'AA';

--$500 million 4.2% notes due Dec. 15, 2010 'AA';

--$700 million 4.75% notes due May 15, 2012 'AA';

--$750 million 5.125% notes due Sept. 15, 2012 'AA';

--$500 million 4.5% notes due Jan. 1, 2013 'AA';

--$950 million 4.625% notes due Oct. 15, 2013 'AA';

--$400 million 5.1% notes due July 15, 2014 'AA';

--$1 billion 4.85% notes due Jan. 15, 2015 'AA'.

GEICO Corporation

--IDR 'AA+';

--$150 million 7.4% senior notes due July 15, 2023 'AA'.

General Re Corporation

--IDR 'AA+';

--$500 million commercial paper program 'F1+'.

XTRA Corporation

--Long-term IDR 'A+';

--$5 million 8.514% senior notes due Sept. 15, 2010, 'A+';

--$5 million 6.96% senior notes due Oct. 18, 2010, 'A+';

--$2 million 7.71% senior notes due May 30, 2012, 'A+';

--Short-term IDR 'F1+';

--Commercial paper 'F1+'.

XTRA Finance Corp.

--Long-term IDR 'A+';

--$400 million 5.15% senior notes due April 1, 2017, 'AA'.

Fitch has placed the following Insurer Financial Strength ratings on Rating Watch Negative:

--Government Employers Insurance Company 'AAA';

--General Reinsurance Corporation 'AAA';

--General Star Indemnity Company 'AAA';

--National Reinsurance Corporation 'AAA';

--General Star National Insurance Company 'AAA';

--Genesis Insurance Company 'AAA';

--Genesis Indemnity Insurance Co. 'AAA';

--Fairfield Insurance Company 'AAA';

--National Indemnity Company 'AAA';

--Columbia Insurance Company 'AAA';

--National Fire and Marine Insurance Company 'AAA';

--National Liability and Fire Insurance Company 'AAA';

--National Indemnity Company of the South 'AAA';

--National Indemnity Company of Mid-America 'AAA';

--Wesco Financial Insurance Company 'AAA'.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

    Source: Fitch Ratings

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