NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'A+' rating to the EUR3 billion senior unsecured notes issued by Berkshire Hathaway Inc. (NYSE:BRK). The 'A+' rating is equivalent to Fitch's rating on BRK's outstanding senior unsecured notes.
KEY RATING DRIVERS
Fitch's ratings on BRK are supported by the 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 equity market risk, insured natural catastrophe exposures, growing exposure to asbestos and environmental risk and various issues associated with the company's acquisition strategy.
BRK's issuance consists of EUR750 million eight-year senior unsecured notes, EUR1.250 billion 12-year senior unsecured notes and EUR1 billion 20-year senior unsecured notes. Proceeds from the issuance will replace $1.7 billion senior unsecured notes that matured in February 2015. The remaining approximately $1.6 billion in proceeds will be used for general corporate purposes and has a minimal impact on financial leverage ratios.
BRK's pro forma year-end 2014 consolidated financial leverage ratio was 25.3%, and excludes after-tax unrealized bond gains from stockholders' equity. Consolidated interest coverage for 2014 was 8.4x excluding realized investment gains.
BRK's pro forma year-end 2014 financial leverage ratio at the holding company level (including debt issued by the company's finance company subsidiaries and guaranteed by BRK) was 14.5%. 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.
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 consolidated run-rate financial leverage ratio that exceeds 30% or a run-rate financial leverage ratio from the holding company, insurance and finance operations (including debt issued or guaranteed by the holding company) that exceeds 25%.
--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.
--EUR750 million 0.75% senior notes due March 2023 'A+';
--EUR1.25 billion 1.125% senior notes due March 2027 'A+';
--EUR1 billion 1.625% senior notes due March 2035 'A+'.
Fitch took no action on the following ratings:
Berkshire Hathaway, Inc.
--Issuer Default Rating (IDR) 'AA-'.
--$300 million 0.8% senior notes due May 2016 'A+';
--$750 million 2.20% senior notes due August 2016 'A+';
--$1.1 billion 1.9% senior notes due January 2017 'A+';
--$800 million 1.55% senior notes due May 2018 'A+';
--$750 million 2.1% senior notes due August 2019 'A+'
--$500 million 3.75% senior notes due August 2021 'A+';
--$600 million 3.40% senior notes due January 2022 'A+'
--$500 million 3% senior notes due May 2023 'A+';
--$1 billion 4.5% senior notes due May 2043 'A+'.
Berkshire Hathaway Finance Corporation (BHFC)
--$500 million 2.45% senior notes due December 2015 'A+';
--$1 billion 0.95% senior notes due August 2016 'A+';
--$400 million floating rate senior notes due January 2017 'A+';
--$650 million floating rate senior notes due January 2017 'A+';
--$1,350 million 1.6% senior notes due May 2017 'A+';
--$400 million floating rate senior notes due August 2017 'A+';
--$600 million floating rate senior notes due January 2018 'A+';
--$1.25 billion 5.4% notes due May 2018 'A+';
--$500 million 2% senior notes due May 2018 'A+'
--$500 million 1.3% senior notes due May 2018 'A+';
--$550 million 2.9% senior notes due October 2020 'A+';
--$750 million 4.25% senior notes due January 2021 'A+';
--$775 million 3% senior notes due May 2022 'A+';
--$750 million 5.750% senior notes due January 2040 'A+';
--$725 million 4.4% senior notes due May 2042 at 'A+';
--$500 million 4.3% senior notes due May 2043 'A+'.
--$150 million 7.35% 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.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (September 2014).
Applicable Criteria and Related Research:
Insurance Rating Methodology