Fitch Rates Berkshire Hathaway Corp's Senior Debt Issue 'A+'
CHICAGO -- February 1, 2013
Fitch Ratings has assigned an 'A+' rating to the $2.6 billion of senior
unsecured notes issued by Berkshire Hathaway Inc. (NYSE:BRK).
The issuance consists of the following: $300 million of 0.8% notes maturing in
2016, $800 million of 1.55% notes maturing in 2018, $500 million of 3% notes
maturing in 2022 and $1 billion of 4.5% notes maturing in 2043. Proceeds from
the senior notes are to be used to redeem $2.6 billion in senior unsecured
notes maturing on Feb. 11, 2013, and consequently financial leverage ratios
will not change.
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
Fitch's assessment of the organization's financial leverage includes debt
issued by the organization's ultimate holding company, debt issued by
insurance holding company subsidiaries, and debt issued by the company's
finance segment subsidiaries that is guaranteed by BRK. Following this
approach, debt-to-total capital and debt-to-tangible capital ratios were
moderate at 19% and 25%, respectively, at Sept. 30, 2012. Debt from BRK's
utilities and railroad operations are expected to be self-funding and are
excluded from the calculation. On a consolidated basis, debt-to-total capital
was 25% as of Sept. 30, 2012.
Consolidated operating interest coverage for the first nine months of 2012 was
greater than 8x, which is more consistent with companies in the next lower
rating category. Fitch's expectations for companies at BRK's rating level
include median interest coverage of 12x. Somewhat offsetting this is
approximately $42 billion of cash and equivalents at the holding company and
insurance operating companies at Sept. 30, 2012. Debt in BRK's capital
structure funds widely different activities, and it is this blended picture
that is below Fitch's expectations relative to insurance company peers.
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 Inc.
--$300 million 0.8% senior notes due May 2016 'A+';
--$800 million 1.55% senior notes due May 2018 'A+';
--$500 million 3.0% senior notes due May 2023 'A+';
--$1 billion 4.5% senior notes due May 2043 '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 Feb. 2013 'A+';
--$1.4 billion 2.125% senior notes due Feb. 2013 'A+';
--$750 million floating rate senior notes due Aug. 2014 'A+';
--$1.7 billion 3.20% senior notes Feb. 2015 'A+';
--$750 million 2.20% senior notes due Aug. 2016 'A+';
--$1.1 billion 1.9% senior notes due Jan. 2017 'A+';
--$500 million 3.75% senior notes due Aug. 2021 'A+';
--$600 million 3.40% senior notes due Jan. 2022 'A+'.
Berkshire Hathaway Finance Corporation (BHFC)
--$1 billion 4.6% notes due May 2013 'A+';
--$1 billion 5.0% notes due Aug. 2013 'A+';
--$950 million 4.625% notes due Oct. 2013 'A+';
--$375 million floating rate senior notes due Jan. 2014 'A+'
--$375 million 1.50% senior notes due Jan. 2014 'A+';
--$400 million 5.1% notes due July 2014 'A+';
--$1 billion 4.85% notes due Jan. 2015 'A+';
--$500 million 2.45% senior notes due Dec. 2015 'A+';
--$1,350 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 Jan. 2021 'A+';
--$775 million 3.0% senior notes due May 2022 'A+';
--$750 million 5.750% senior notes due Jan. 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 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'. 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. The ratings above were unsolicited and have been provided by Fitch
as a service to investors.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Oct. 18, 2012).
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended
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Douglas M. Pawlowski, CFA, +1-312-368-2054
70 W. Madison
Chicago, IL 60602
Christopher A. Grimes, CFA, +1-312-368-3263
Douglas L. Meyer, CFA, +1-312-368-2061
Brian Bertsch, New York, +1 212-908-0549
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