Fitch reviews whether to cut Berkshire rating

posted: 20 DAYS 16 HOURS AGO

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CHICAGO -Fitch Ratings warned Thursday that Berkshire Hathaway Inc.'s deal for Burlington Northern Santa Fe Corp. could overexpose Warren Buffett's company to weaknesses in the economy at the expense of its more durable investments.

The agency put Berkshire Hathaway rating's under review for a possible downgrade in the wake of its announcement Tuesday that it will buy the rest of the railroad company based in Texas for $26.3 billion. Berkshire already owns a 22 percent stake in the railroad.

Another big ratings agency, Standard & Poor's, placed its Berkshire ratings under review to see if a downgrade was in order on Wednesday.

Fitch said the acquisition and Berkshire Hathaway's investments in utilities, energy and finance companies are shifting its asset profile toward businesses that use more financial leverage.

It says those investments are more sensitive to the economy than investments in insurance and holding companies.

Berkshire Hathaway did not immediately respond to an e-mail seeking comment.

Berkshire Hathaway's issuer default rating is AA+, Fitch's second-highest rating. The ratings agency said the high ratings enjoyed by Berkshire Hathaway and its insurance subsidiaries are due to investments in the comparatively highly-rated insurance sector and equity investments that generated significant capital growth, Fitch said.

Other ratings for Berkshire Hathaway notes and subsidiaries are at AA, A+ and AAA.

In its announcement Wednesday, S&P warned that the railroad deal could sap the liquidity and capital position of the insurance operations at Berkshire Hathaway, jeopardizing the company's AAA rating — S&P's prized top rating held by very few companies.

Fitch placed on its rating watch negative Berkshire Hathaway's issuer default rating and numerous notes held by Berkshire Hathaway Finance Corp. and other entities, including its insurance company holdings.

The acquisition of Burlington Northern, the nation's second-largest railroad, would be the biggest ever for Buffett's holding company.

The deal requires approval from Burlington shareholders and antitrust regulators and is set to close early next year.

Berkshire's Class B shares were up $9.98 at $3,390.98 in late trading Thursday.

2009-11-05 15:39:17