Lessons of Triple-A Past: Berkshire Hathaway by Fitch (BRK-A)
It was once upon a time that the ratings agencies used to have Warren Buffett’s own company of Berkshire Hathaway Inc. (NYSE: BRK-A) as a “AAA” rating. It was one of the few, but the ills of the last decade…
Last week came a new $2 billion bond issue of senior notes from Berkshire Hathaway. While today’s note is from Fitch, there is a simple reminder: one downgrade does not assure downgrade after downgrade automatically. As a reminder, Berkshire Hathaway Inc. was covered in our top analyst calls of the week as it received two equity analyst upgrades.
Fitch Ratings assigned a ‘A+’ rating to Berkshire Hathaway’s new issue of senior notes. Fitch also affirmed the ‘AA-‘ Issuer Default Rating and the ‘AA+’ Insurer Financial Strength ratings on the company’s key insurance subsidiaries. More importantly, the Rating Outlook is listed as being Stable. At the same time, Fitch has assigned an ‘A+’ rating to three senior notes totaling $1.5 billion issued by Berkshire Hathaway Finance Co. (BHFC) in January 2011.
The $2 billion note issue “only modestly increases consolidated financial leverage” to 26% of total capital while its consolidated operating earnings interest coverage for the first half of 2011 was 5.8 times on a pro forma June 30, 2011 basis according to Fitch.
SOme of the positive points are from solid underwriting profits, earnings from a growing number of non-insurance acquisitions, and that the investment strategy has brought book value growth and a point of differentiation from peers.
Berkshire Hathaway is no AAA any long, but neither is the UNited States even if Warren Buffett called our nation a “quadruple-A” a week earlier. The good news is that losing a Triple-A rating at one or more of the ratings agencies does not assure that more downgrades are going to continue.
Lessons to be learned….
JON C. OGG
Contact [email protected] for any questions or corrections.
Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.
