Warren Buffett’s Berkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp.

Berkshire, which is taking on debt to fund the $26 billion takeover, was cut one level to AA+ from S&P’s highest grade, the ratings firm said today in a statement.
The downgrade came the same day Berkshire filed to sell $8 billion of bonds to fund the Burlington Northern purchase. The sale of the senior unsecured notes was completed after the ratings company announced its decision, said a person with knowledge of the transaction.
“We think that Berkshire is becoming increasingly complex,” Damien Magarelli, an S&P credit analyst, said today in an interview. “We’re not of the view that the risk tolerances and risk management processes have evolved at the same pace.”
Buffett, 79, has called the railroad takeover an “all-in wager” on the U.S. economy. Berkshire lost its top credit grades at Fitch Ratings in March and at Moody’s Investors Service in April amid a slump in the firm’s manufacturing, retail and travel units. The earlier downgrades were on concern about Buffett’s successor and the firm’s derivative bets.
The ratings firms “are hedging their bets in the event of another economic downturn,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. Buffett’s firm is “expanding in economically sensitive businesses, like the railroads,” he said.
Berkshire’s Class A shares fell $2,800, or 2.5 percent, to $108,900 in New York Stock Exchange composite trading today. Buffett didn’t respond to a request for comment left with an assistant. The ratings cut concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the Burlington Northern deal.
General Electric Co. and drugmaker Pfizer Inc. are among companies that lost their top credit grades from S&P in the past year. Berkshire, which Buffett built into a $170 billion company over four decades, was raised to AAA at S&P in 1989.
Berkshire reported its first loss since 2001 in the first quarter of 2009 as Buffett’s stock bets soured. The firm returned to profit in the second and third quarters as equity indexes advanced.
Still, losses at Berkshire’s NetJets subsidiary and earnings declines at Clayton Homes contributed to a pretax profit plunge of more than half at Berkshire’s manufacturing, service and retailing units in the first nine months of 2009.
(Source: Bloomberg)