Buffett’s Berkshire avoids S&P rating downgrade

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Standard & Poor’s left intact its “AA” credit ratings for Warren Buffett’s Berkshire Hathaway Inc, saying the company’s diversification and “modest” financial risk justify the high grade.
Berkshire had been put on review on Aug. 11 for a possible downgrade on concern about Buffett’s decision to deploy a large amount of cash toward the $32 billion acquisition of industrial parts maker Precision Castparts Corp.
But S&P analyst Laline Carvalho said Berkshire’s ratings were supported by the Omaha, Nebraska-based company’s “excellent” profitability, “exceptional” liquidity and ability to generate significant cash flow from its roughly 90 operating businesses.
S&P’s “AA” rating is its third-highest, and its outlook for Berkshire is “stable.”
It also affirmed Berkshire’s “A-1+” short-term credit ratings, the highest possible, as well as several ratings for Berkshire’s insurance units. S&P also raised its ratings for Berkshire’s BNSF railroad unit.
Downgrades could have boosted Berkshire’s borrowing costs.
The company completed the Precision Castparts purchase last month.
S&P also said it now analyzes Berkshire as a “corporate conglomerate” rather than as an “insurance holding company,” reflecting the growing importance of its non-insurance businesses.
Long known for owning businesses such as auto insurer Geico and reinsurer General Re, Berkshire has diversified through big acquisitions such as Precision Castparts, BNSF, chemical company Lubrizol and Nevada utility NV Energy.
It also owns nearly 27 percent of Kraft Heinz Co, which was created last year from the merger of Kraft Foods Group and H.J. Heinz Co. Berkshire bought about half of Heinz in 2013.
Buffett has said that excluding Kraft Heinz, Berkshire owns 10 companies large enough to be listed on the Fortune 500 if they were independent.
Insurance units generate roughly one-fifth of Berkshire’s operating profit, down from the one-third or more common in the last decade.
But they help Buffett fund acquisitions and investments by providing large amounts of “float,” or the amount of premiums held before claims are paid. Insurance float at Berkshire totaled $86.2 billion as of Sept. 30.
Berkshire held “triple-A” grades from all three major US credit rating agencies as recently as 2009.
In afternoon trading, Berkshire’s Class A shares were up $1,475, or 0.8 percent, at $197,500.

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