Fitch Assigns 'A+' to Berkshire Hathaway Finance Corporation's Senior Debt
CHICAGO -- January 17, 2013
Fitch Ratings has assigned 'A+' ratings to the $500 million of senior
unsecured notes issued by Berkshire Hathaway Finance Corp. (BHFC). The notes
are guaranteed by Berkshire Hathaway Inc. (NYSE:BRK). The 'A+' ratings are
equivalent to Fitch's ratings on BHFC's outstanding senior unsecured notes
that are guaranteed by BRK.
The issuance of senior unsecured notes consisted of the following: $275
million, 1.6% coupon, maturing in 2017 and $225 million, 3% coupon, maturing
in 2022. Proceeds from the senior notes are to be used to redeem notes
maturing this month.
KEY RATING DRIVERS:
Fitch's ratings on BRK are supported by extremely strong capitalization and
market position of its insurance subsidiaries, solid operating performance
with good diversification across business lines and excellent financial
flexibility and liquidity.
Also considered in the ratings are material risk exposures related to an above
average investment allocation to common stocks, a substantial position in
equity derivatives, insured natural catastrophe exposures and various issues
associated with the company's acquisition strategy and succession planning.
BRK's consolidated financial leverage was 25% of total capital as of Sept. 30,
2012. Consolidated interest coverage for the first nine months of 2012 was
greater than 8x excluding realized investment gains. Both financial leverage
and interest coverage ratios are not expected to change meaningfully given the
modest size of the issuance relative to total capitalization and since
proceeds will be used to pay maturing debt.
BRK's debt-to-total capital and debt-to-tangible capital ratios at the holding
company level (including debt issued by the company's finance company
subsidiaries and guaranteed by BRK) were 19% and 25%, respectively at Sept.
30, 2012. Fitch views BRK's ability to fund finance operations at a low cost
as an important competitive advantage for the finance operations and also
notes that much of the finance company debt is guaranteed by BRK.
Fitch withdraws the rating of Fairfield Insurance Co., a subsidiary of General
Reinsurance Corp., after it was merged into Genesis Insurance Co. at year-end
Key rating triggers that could lead to a future downgrade include:
--Deterioration in the credit quality of key insurance subsidiaries (National
Indemnity, GenRe, and GEICO) that is no longer consistent with the current
'AA+' rating. Measures of credit quality include Fitch's judgment of
capitalization, a total financing and commitments ratio greater than 1.5x, net
leverage (excluding affiliated investments) over 3.5x or a sharp and
persistent reduction in underwriting profits.
--A run-rate debt-to-tangible capital ratio from the holding company,
insurance and finance operations (including debt issued or guaranteed by the
holding company) that exceeds 30%.
--Material increases in leveraged equity market exposure such as its equity
index put derivative portfolio.
--Acquisitions or other actions that reduce outstanding cash below $10 billion
or approximately 5x consolidated interest expense.
Key rating triggers that could lead to an upgrade include:
--A commitment to lower debt-to-tangible capital ratios attributed to the
holding company, insurance and finance operations. Fitch believes that this
would likely require the scaling back of the finance operations.
Fitch has assigned the following ratings:
Berkshire Hathaway Finance Corporation (BHFC)
--$275 million 1.6% senior notes due May 2017 'A+';
--$225 million 3% senior notes due May 2022 'A+'.
Fitch took no action on the following ratings:
Berkshire Hathaway, Inc.
--Issuer Default Rating (IDR) 'AA-'.
--$1.2 billion floating rate senior notes due February 2013 'A+';
--$1.4 billion 2.125% senior notes due February 2013 'A+';
--$750 million floating rate senior notes due August 2014 'A+';
--$1.7 billion 3.20% senior notes February 2015 'A+';
--$750 million 2.20% senior notes due August 2016 'A+';
--$1.1 billion 1.9% senior notes due January 2017 'A+';
--$500 million 3.75% senior notes due August 2021 'A+';
--$600 million 3.40% senior notes due January 2022 'A+'.
Berkshire Hathaway Finance Corporation (BHFC)
--$1 billion 4.6% notes due May 2013 'A+';
--$1 billion 5% notes due August 2013 'A+';
--$950 million 4.625% notes due October 2013 'A+';
--$375 million floating rate senior notes due January 2014 'A+'
--$375 million 1.50% senior notes due January 2014 'A+';
--$400 million 5.1% notes due July 2014 'A+';
--$1 billion 4.85% notes due January 2015 'A+';
--$500 million 2.45% senior notes due December 2015 'A+';
--$1,075 million 1.6% senior notes due May 2017 'A+';
--$1.25 billion 5.4% notes due May 2018 'A+';
--$750 million 4.25% senior notes due January 2021 'A+';
--$550 million 3.0% senior notes due May 2022 'A+';
--$750 million 5.750% senior notes due January 2040 'A+'
--$500 million 4.4% senior notes due May 2042 at 'A+'.
--$150 million 7.4% senior notes due July 15, 2023 'A+'.
General Re Corporation
--$500 million commercial paper program 'F1+';
--Short-term IDR 'F1+'.
Fitch withdrew the following 'AA+' Insurer Financial Strength rating:
--Fairfield Insurance Co.
Fitch did not take a rating action on the following insurance subsidiaries
that currently carry an 'AA+' Insurer Financial Strength:
--Government Employers Insurance Company;
--General Reinsurance Corporation;
--General Star Indemnity Company;
--General Star National Insurance Company;
--Genesis Insurance Company;
--National Indemnity Company;
--Columbia Insurance Company;
--National Fire and Marine Insurance Company;
--National Liability and Fire Insurance Company;
--National Indemnity Company of the South;
--National Indemnity Company of Mid-America;
--Wesco Financial Insurance Company.
Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Jan. 11, 2013).
Although BRK's General Reinsurance Corp. subsidiary participated directly in
the rating process, BRK did not participate other than through the medium of
its public disclosure.
Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
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Douglas M. Pawlowski, CFA, +1-312-368-2054
70 W. Madison Street
Chicago, IL 60602
Christopher A. Grimes, CFA, +1-312-368-3263
Julie A. Burke, CPA, CFA, +1-312-368-3158
Brian Bertsch, New York, +1-212-908-0549
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