Buffett's Berkshire Hathaway Losses Its Triple-A Rating
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Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
0 Buy, 0 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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As the Burlington Northern Santa Fe acquisition by Warren Buffett's Berkshire Hathaway's (NYSE: BRK.a) (NYSE: BRK.b) nears a close, the conglomerate was met with a nasty downgrade of its pristine triple-A credit rating today by S&P.
S&P lowered its long-term counterparty credit rating on Berkshire Hathaway Inc. (BRK) to 'AA+' from 'AAA'. The firm also lowered their financial strength ratings on BRK's core insurance operations to 'AA+' from 'AAA'.
The actions were taken in anticipation of Berkshire Hathaway's acquisition of Burlington Northern Santa Fe, which is expect to close no later than Feb. 15. Berkshire is financing the acquisition of the remaining 88% of the outstanding shares for about $26 billion with a combination of 60% cash and 40% through the issuance of new BRK shares. The cash portion of about $16 billion will come from cash on hand and new debt issuance of approximately $8 billion.
Standard & Poor's credit analyst John Iten stated, "the rating actions are based on our view that Berkshire's overall capital adequacy, as well as that of its insurance operations, has weakened to levels no longer consistent with a 'AAA' rating and is not expected to return to extremely strong levels in the near term." Iten also notes the liquidity position of BRK will be reduced from extremely strong historical levels as a result of the acquisition.
Despite the debt downgraded, the firm notes earnings at Berkshire Hathaway remains strong and will likely increase as a results of the Burlington Northern acquisition.
Uncertainty surrounding management succession and management structure, corporate culture, and business strategy following an eventual transition of the company's leadership from current CEO Warren Buffett is an ongoing concern, the firm notes.
S&P lowered its long-term counterparty credit rating on Berkshire Hathaway Inc. (BRK) to 'AA+' from 'AAA'. The firm also lowered their financial strength ratings on BRK's core insurance operations to 'AA+' from 'AAA'.
The actions were taken in anticipation of Berkshire Hathaway's acquisition of Burlington Northern Santa Fe, which is expect to close no later than Feb. 15. Berkshire is financing the acquisition of the remaining 88% of the outstanding shares for about $26 billion with a combination of 60% cash and 40% through the issuance of new BRK shares. The cash portion of about $16 billion will come from cash on hand and new debt issuance of approximately $8 billion.
Standard & Poor's credit analyst John Iten stated, "the rating actions are based on our view that Berkshire's overall capital adequacy, as well as that of its insurance operations, has weakened to levels no longer consistent with a 'AAA' rating and is not expected to return to extremely strong levels in the near term." Iten also notes the liquidity position of BRK will be reduced from extremely strong historical levels as a result of the acquisition.
Despite the debt downgraded, the firm notes earnings at Berkshire Hathaway remains strong and will likely increase as a results of the Burlington Northern acquisition.
Uncertainty surrounding management succession and management structure, corporate culture, and business strategy following an eventual transition of the company's leadership from current CEO Warren Buffett is an ongoing concern, the firm notes.
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