Buffett's Berkshire Hathaway avoids S&P rating downgrade

Fri Feb 19, 2016 3:33pm EST
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By Jonathan Stempel

(Reuters) - Standard & Poor's on Friday left its "AA" credit ratings for Warren Buffett's Berkshire Hathaway Inc (BRKa.N: Quote) alone, saying the company's growing diversification and "modest" financial risks meant a downgrade was not necessary.

Berkshire had been put on review for a possible downgrade on Aug. 11, on concern about Buffett's decision to deploy a large amount of cash toward last month's $32 billion acquisition of industrial parts maker Precision Castparts Corp.

But S&P analyst Laline Carvalho said Berkshire's "consistently strong" operating profitability and "exceptional" liquidity, plus the significant cash flow from its roughly 90 operating units, justify the "AA" rating, S&P's third highest.

S&P also affirmed Berkshire's "A-1+" short-term credit ratings, the highest possible, and its ratings for several insurance units, including Geico and General Re. It also raised its ratings for Berkshire's BNSF railroad.

The agency also said it now analyzes Berkshire as a "corporate conglomerate" rather than as an "insurance holding company," reflecting the growing importance of non-insurance businesses. It has a "stable" outlook for Berkshire's ratings.

"Berkshire has demonstrated the financial flexibility to generate cash from many of its operating businesses, and is not reliant as much on its insurance units as we had thought," Carvalho said in an interview.

Downgrades could have boosted Berkshire's borrowing costs.

In recent years, Omaha, Nebraska-based Berkshire has diversified through big purchases such as Precision Castparts, BNSF, chemical company Lubrizol and Nevada utility NV Energy.   Continued...

Warren Buffett, chairman and CEO of Berkshire Hathaway, takes his seat to speak at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015.  REUTERS/Kevin Lamarque