May 4 (Bloomberg) -- Billionaire Warren Buffett, whose Berkshire Hathaway Inc. has begun competing with MBIA Inc. and Ambac Financial Group Inc. to insure municipal bonds, said some rivals don't deserve their AAA credit ratings.

Credit-rating firms shouldn't be giving top grades to bond insurers that borrow money at 14 percent or whose stock has dropped 95 percent, Buffett said at a press conference today in Omaha, Nebraska, a day after Berkshire's annual meeting.

If there's been a similar case of a company retaining its AAA rating after the stock plunged from $96 to $4 in a year, Buffett said, ``I've yet to see it.''

Berkshire, whose credit is also rated AAA, owns almost 20 percent of Moody's Corp., one of the biggest U.S. rating firms. That's attracted scrutiny from Connecticut Attorney General Richard Blumenthal, who said in an interview last week he's probing possible conflicts of interest between Berkshire's four- month-old bond insurer and the stake in Moody's.

A favorable Moody's rating for Berkshire or a lower rating for a competitor could give Buffett's firm an advantage. Buffett said yesterday he's never tried to influence Moody's.

Buffett created his bond insurer in December after state regulators sought to help governments get coverage when losses jeopardized the AAA ratings of bond insurers MBIA, based in Armonk, New York, and Ambac, based in New York. States and municipalities buy bond insurance to raise the rating on their debt, which reduces the interest rate and saves taxpayers money.

MBIA Response

``The rating agencies have already made considered judgments and, obviously, they are in a better position than anyone to make those assessments,'' said MBIA spokesman Willard Hill in an e-mailed statement. Officials at Ambac, Moody's and ratings firm Standard & Poor's, a unit of McGraw-Hill Cos., couldn't be reached for comment.

Ambac, the world's second-largest bond insurer behind MBIA, has dropped from a high of more than $96 last year, and it's down 94 percent in 12 months of New York Stock Exchange trading to $5.38 a share. MBIA has tumbled 84 percent.

Berkshire's municipal bond unit is now licensed in 49 states and plans to sell more insurance, Buffett said.

To contact the reporters on this story: Erik Holm in Omaha, Nebraska at eholm2@bloomberg.net; Josh P. Hamilton in Omaha at jphamilton@bloomberg.net

Last Updated: May 4, 2008 18:57 EDT