This page has been archived and commenting is disabled.
S&P Downgrades Berkshire From AA+ To AA, Outlook Negative
Obviously with Buffett a major shareholder of Moody's, the only place where a downgrade of Berkshire could come from was S&P. Moments ago, the rating agency that dared to downgrade the US for which it is being targeted by Eric Holder's Department of "Justice", did just that.
On New Criteria, Berkshire Hathaway Inc. Downgraded To 'AA', Core Ins. Subs Affirmed At 'AA+', Senior Debt Rated 'AA'
Overview
- Under our revised group methodology criteria, we are lowering our counterparty credit rating on BRK to 'AA' from 'AA+'. At the same time, we are affirming our 'AA+' counterparty credit and financial strength ratings on BRK's core operating insurance companies.
- The ratings reflect our view of the group's excellent business risk profile and very strong financial risk profile based on an extremely strong competitive position and very strong capital and earnings.
- The negative outlook reflects the U.S. sovereign ratings cap and our view that the group's capital adequacy per our capital adequacy model could deteriorate relative to its risk profile.
Rating Action
On May 16, 2013, Standard & Poor's Ratings Services lowered its counterparty credit rating on Berkshire Hathaway Inc. (NYSE:BRK; AA/Negative/A-1+) by one notch to 'AA' from 'AA+' and affirmed its 'AA+' insurance financial strength ratings on BRK's core subsidiaries following release of our revised Insurers Rating and Group Rating Methodology, released on May 7, 2013. The outlook on all ratings is negative. At the same time, we assigned our 'AA' senior debt rating to Berkshire Hathaway Finance Corp.'s (BHFC) $1.0 billion senior
unsecured notes. BHFC has issued the notes in two tranches: $500 million 1.3% senior unsecured notes due May 15, 2018, and $500 million 4.3% senior unsecured notes due May 15, 2043. The company used the proceeds of this issue to repay $1.0 billion of senior notes maturing on May 15, 2013.
Rationale
BRK fully guarantees BHFC's new note issuance. BHFC's borrowings are used to fund the finance operations of Vanderbilt Mortgage & Finance Inc., a wholly owned subsidiary of Clayton Homes Inc., a vertically integrated manufactured housing company. We treat these borrowings as operating leverage, so we exclude the debt, interest expense, and pretax operating income of these operations from our calculations of financial leverage and coverage for BRK.
The lower credit rating on BRK better reflects our view of BRK's dependence on its core insurance operations for most of its dividend income. Its non-insurance business segments generate a majority of BRK's operating income, but aside from the insurance subsidiaries only Burlington Northern Santa Fe LLC (BNSF) has provided a significant portion of the total dividends paid from the operating companies to the holding company. BRK's adjusted leverage and coverage metrics are more consistent with those of 'AA' rated issuers rated under our comparable corporate criteria.
BRK's adjusted debt-to-EBITDA ratio of 1.6x as of year-end 2012 was slightly less than the 'AA' U.S. corporate median (three-year average) of 1.2x, while its adjusted EBITDA fixed-charge coverage ratio for 2012 was about 23x, when evaluated against the 'AA' U.S. corporate median (three-year average) of 19.6x. As of year-end 2012, adjusted financial leverage was about 12%. The vast majority (close to 80%) of the insurance group's dividend capacity is from insurers domiciled in one state. Therefore, dividends are subject to the applicable statutory limitations on the amount of dividends an insurer is permitted to pay without receiving special approval from the state insurance commissioner, in this case the Nebraska Department of Insurance. Nevertheless, BRK continues to benefit from nonstandard notching and is the only interactively rated insurer that has an issuer credit rating less than two notches below the core insurance company ratings. This reflects our view of the diversity of businesses and the substantial amount of cash and investments at the holding company.
The ratings reflect our view of BRK's excellent business risk profile (BRP) and very strong financial risk profile, built on an extremely strong competitive position and very strong capital and earnings. These factors are offset to some extent by BRK's high tolerance for equity investments, which has resulted in volatility in the company's insurance subsidiaries' statutory capital, capital adequacy of the insurance operations being less than what we typically expect for the rating category, and adequate enterprise risk management. Management succession at BRK is also an offsetting factor. We assess a one-notch uplift to the BRP to reflect our view of the low-risk nature of its non-insurance operations, which comprise approximately 60% to 70% of total earnings. In addition, we apply a holistic adjustment because BRK, on a consolidated basis, continues to outperform its insurance and non-insurance peers with respect to operating and financial performance, such as underwriting and cash-flow generation. For first-quarter 2013, pretax operating income was $5.9 billion, up 36% from the same quarter in 2012, with most of the improvement stemming from the insurance segment of BRK. Shareholders' equity rose to $198.1 million from $187.6 million as of year-end 2012, mostly driven by $5 billion of net income in the quarter and the appreciation of unaffiliated equity securities.
Outlook
The outlook is negative for two reasons. One is the sovereign rating cap of 'AA+/Negative', which applies to the obligations of the U.S. government, government-related enterprises, and U.S. financial services firms. The second reason is that we could lower the rating if the capital adequacy according to our capital model of BRK's insurance operations relative to its risk profile deteriorates as a result of a material increase in investment risk exposure or the funding of a large acquisition by the insurance companies. The negative outlook reflects our sovereign rating cap and our view on the group's capital adequacy per our proprietary capital model. We also expect the group to maintain operating performance consistent with our base-case scenario, and at least a very strong competitive position.
»
- 9311 reads
- Printer-friendly version
- Send to friend
- advertisements -
Time for an audit.
Becky! Warren needs a diaper change!
When I am Warren's age, I certainly hope there is a "Becky" in my life to do such things. My guess is that there are many "Beckys" in the lives of people who control such capital. Same as it ever was.
Time for corrupt old fart to buy S&P.
S&P ratings:
http://www.standardandpoors.com/ratings/ratings-actions/en/us?tabRAL=RA&...
He owns Moodys. You do know we have monopoly laws. (sarc)
Nothing to worry about as long as you have a few billion in the bank.
"Money makes the ugly beautiful and the stupid smart."
~ K Marx
FORWARD SOVIET!
Diaper change?....Depends.
the train has left the station...
S&P downgrade means time to buy right?
time for a funeral...
I like how Buffett, the fraudmeister supremo, owns a mobile home manufacturer for the plebes. That's rich. Uncle fraud just helping out the masses. Hope he fucking dies real soon
He also owns trains, and NetJets. He knows the world will be a few extremely rich and the rest acting like hobos during the depression....
Buffert and Charlie Mungo need to take a dirt nap.
After eating all those cheeseburgers and drinking all that Dr Pepper, I doubt Warren's heart will be able to take the rage attack he is currently having.
Cherry Cokes. He is a big Coca Cola shareholder.
Time for a bubble bath....where's Froggy?
Froggy? You mean Sleestak Magoo Munger?
More like where's Becky!?
The old man is going to trash a Dairy Queen in Omaha.
Just the restroom? Or is he senile enough to have milk induced explosive diarreah on the front counter too?
Time for a drink...
LOL. Buffy built a house of cards on top of a mobile home finance corporation. Look at the companies this guy owns: mobile home mfg., mobile home finance, white trash Dairy Queens, etc.
But have you tried the soft serve vanilla icecream with the chocolate dip? My God it's heaven (if you can eat the damn thing fast enough before it drips all over your hands).
Dairy Queen is a gold mine. I go there about once a quarter because their Blizzards are good. After the evil old bastard bought DQ - they jacked up prices like crazy. You could get a large Blizzard for about $2.80 and noe they are almost $4.00. Buffett's evil pal Obama and The Ben Bernank have trashed the fiat FRN - so evil Buffett crams down the price increases on the DQ customers and franchisees. Evil old F.
S&P records clearly need to be the target of a secret DOJ investigation.
But don't worry the Fast & Furious Holder will secretly recuse himself, with his secret decoder ring.
they left off the fed's explicit guarantee that guys like buffett always get richer no matter what
Whyfor u dissing DQ?
It's the home of Ensure on a Stick, Buffets favorite snack...
Before Munger opens his mouth on this topic, I'd like to tell him "suck it up".
Smoke, then fire
Buffet still likes his mortgages - house of cards stacks nice and high since 2009 - enjoy the ride down Warren.
..." high tolerance for equity investments ". What S&P really says is they is buying too much stawks...adding to positions in WMT and IBM among others. Uncle Warren is always pimping the market. Consequently, it will never go down again. Buffett, like Obama, is never wrong.
Buffet's twitter account was a sign of the endtimes for global finance, and a personal blow off top for his own ego.
Just another "buy the bubble" opportunity!
So nice to know now that reality is irrelevant because the Fed god has always got our backs!
Who needs reality!? We have PRINTED prosperity now!
If the stock market crashes to levels where it finds real buyers (or at least no more sellers), Berkshire is toast on its enormous option bet and bank holdings.
It is amazing to see how decrepit and deranged this once "brilliant" man has become.
Wow, can you imagaine where this POS would be without govermment bailouts?
warren and the dollar ~ R.I.P.
Hey Warren, barbarians (goldbug) are at the gate.
Time for Buffett to pull out his ukulele and play Taps.
btw, warren has been gradually selling his moody's stake since 2009:
http://www.usatoday.com/story/money/business/2013/05/07/berkshire-sells-moody-shares/2141787/
He should be in jail by now for FRAUDULENT rating of junk mortgages as AAA!
Does this mean that Berkshire Hathaway is soon to be in for a federal bailout, and that we should sell our precious metals and buy the stock?
Moodys downgrades S&P too Junk
How did the DoJ miss that one? Must have been busy. While I do beleive S&P facitilated a crime prior to today, it appears at least they have learned and are correcting thier errors. Is anyone in governemnt listening/reading? Well ofcourse we know the answer to that question and it is yes.
iwantmycountryback.com
I used to admire Warren Buffet, before he switched to the "dark side".
It is truly sickining to hear this criminal now.
He should be in jail for his rating agency's (Moodys) mortgage rating FRAUD.
He is on the take from us taxpayers for being bailed out at GE and Wells Fargo.
And this scum bag, shamelessly, asks taxpayers to pay more taxes so that we can keep bailing him out!
GE and WF were flies on a bull's ass -don't forget that BH has/had tens of billions of dollars in exposure to puts written on the S&P going out to 2018 payable at levels below 1,500 - that's a bailout nobody wants to discuss when he does one of his Quicky interviews. What a worthless POS - but it totally explains his behavior.