Moody's Investors Service has undertaken a rating action on
the recently issued notes by Berkshire Hathaway Finance
Corporation (BHFC) a subsidiary of
Berkshire Hathaway Inc.
The $400 million notes with maturity of three years and $550
million of seven-year notes being issued by BHFC have been given
Aa2 ratings, which are of of investment grade.
Cash from the issue of the notes will be utilized to pay off
$950 million of BHFC notes maturing in mid-October. The rating
agency kept the outlook for Berkshire and BHFC at
Moody's takes into account the strong operating performance at
the parent company. It noted that Berkshire Hathaway has shown a
superior operating profitability for the first half of 2013. As
per Moody's estimates the Berkshire Hathaway parent carries a
modest financial leverage of 11% and huge cash balance of around
$20 billion. This signifies the company's strong capital
However, a major concern with the rating agency is the
succession issue of Warren Buffett, who is at present both - the
Chief Investment Officer and also the Chairman of Berkshire
Hathaway. Also the company holds an above average equity
concentration in the company's investment portfolio, which
exposes income from investment to market volatility.
For BHFC the rating agency is confident that the company will
be able to service its outstanding debt of 1.2 billion due in
2014, $1.5 billion in 2015 and $8.5 billion in 2016-43 with the
help of recent notes issue and continued capital support and
guarantee from the parent.
Financial strength and credit ratings, which intend to measure
a company's ability to meet policyholder obligations, are
important factors affecting public confidence and
creditworthiness of a company, and hence denote a company's
competitiveness. Securing an investment grade debt rating with a
stable outlook reflects optimism about the future performance of
A rating upgrade can happen of the credit profile of
Berkshire's subsidiaries improves, and cash balance is continued
to be maintained.
A negative rating action may follow if credit profile
deteriorates, financial leverage spikes above 15%, losses from
reinsurance /insurance underwriting, investments and derivatives
cause a 20% decline in shareholders' equity in a given year; or
there is a significant decline in cash and equivalents on
Berkshire Hathaway retains a Zacks Rank #1 (Strong Buy). Other
players from the same industry such as
Hanover Insurance Group Inc.
Montpelier Re Holdings Ltd.
) carrying Zacks Rank #1(Strong Buy) are also worth
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
MONTPELIER RE (MRH): Free Stock Analysis
HANOVER INSURAN (THG): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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