CHICAGO--Fitch Ratings has assigned 'A+' ratings to three new senior unsecured notes issued by Berkshire Hathaway Inc. (NYSE:BRK). The proceeds of the note issuances will be used to repay a $10 billion bank loan that was used to partially fund the acquisition of Precision Castparts Corp. (PCC) on Jan. 29, 2016 for approximately $37.2 billion, as well as to refinance $300 million of 2.2% senior notes that matured and were repaid on Feb. 11, 2016.
Fitch originally assigned the 'A+' ratings to the senior notes on March 10, 2016.
KEY RATING DRIVERS
BRK's consolidated financial leverage ratio remained under 30% after the EUR2.75 billion debt issuance. This level of financial leverage does not trigger any rating downgrade sensitivities; however, BRK is approaching Fitch's limits on financial leverage and interest coverage. Consequently, another material acquisition funded with significant amounts of additional debt leverage may place downward pressure on BRK's ratings.
BRK's consolidated financial leverage ratio was 24.6% as of Dec. 31, 2015. Pro-forma financial leverage including the EUR2.75 billion of new senior notes was 28.2% at year-end 2015. Consolidated interest coverage in 2015 was 8.0x excluding realized investment gains, which is below Fitch's expectations of 12x for companies at BRK's rating level. An alternate calculation of interest coverage, excluding railroad, utilities and energy, was 18.3x in 2015 and is consistent with the current rating category.
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 debt-to-total capital ratio that exceeds 30% or a run-rate debt-to-total capital 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.
FULL LIST OF RATING ACTIONS
Fitch assigned the following ratings on March 10, 2016:
Berkshire Hathaway, Inc.
--EUR1.0 billion 0.500% senior notes due March 2020 'A+';
--EUR1.0 billion 1.3% senior notes due March 2024 'A+';
--EUR750 million 2.150% senior notes due March 2028 'A+';
Date of Relevant Rating Committee: Oct. 26, 2015.
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.
Insurance Rating Methodology (pub. 16 Sep 2015)