New York, December 19, 2018 -- Moody's Investors Service has affirmed the Aa2 senior unsecured
debt rating and Prime-1 short-term issuer rating of Berkshire
Hathaway Inc. (Berkshire, NYSE: BRK) as well as the
ratings of subsidiary obligations guaranteed by Berkshire (see list below).
This action follows Moody's affirmations of the ratings of Berkshire's
main (re)insurance subsidiaries. The rating outlook for Berkshire
is stable.
RATINGS RATIONALE
The affirmation of Berkshire's ratings reflects its highly capitalized
(re)insurance operations and its well diversified earnings and cash flows
from both regulated and non-regulated businesses, according
to Moody's. The ratings also incorporate Berkshire's
conservative operating and financial principles, including its maintenance
of a large liquidity pool and moderate financial leverage. Tempering
these strengths are potential earnings and capital volatility related
to the company's large, concentrated stock investments and
its large individual (re)insurance transactions. Other challenges
include enterprise risk management, given the vast business portfolio,
and management succession, given the critical role CEO Warren Buffett
has played in developing Berkshire's culture and financial performance.
Berkshire reported net operating earnings (which exclude investment and
derivative gains/losses) of $19 billion in the first nine months
of 2018, up from $11 billion in the prior-year period,
with double digit increases in all segments. The reduced tax rate
under the new US tax law drove much of the improvement, along with
more favorable development of (re)insurance loss reserves, lower
catastrophe losses and supportive economic conditions.
Berkshire also reported large investment gains through the first nine
months of 2018, mainly from appreciation of its common stock portfolio
in a rising equity market. For the fourth quarter of 2018,
Moody's expects that Berkshire will continue to report strong operating
earnings, offset by investment losses given that equity markets
are down sharply in the current quarter.
As of September 30, 2018, Berkshire had consolidated cash
and equivalents totaling $104 billion, a majority held within
the (re)insurance segment. The company had total borrowings of
$98 billion, a majority issued by the railroad and utilities
and energy segments. Consolidated total leverage, which incorporates
all reported debt plus Moody's adjustments for pensions and leases,
was about 22%, down from 24% at year-end 2017.
Berkshire generates healthy pretax interest coverage, averaging
more than 10 times over the past five years. The company holds
at least $20 billion of cash and equivalents at or readily available
to the parent to address potential needs of the parent or its subsidiaries.
Moody's cited the following factors that could lead to an upgrade of Berkshire's
ratings: (i) meaningful improvement in the standalone credit profiles
of major operating units, and (ii) continued holdings of substantial
cash and equivalents at or readily available to the parent company relative
to outstanding indebtedness.
Factors that could lead to a rating downgrade include: (i) meaningful
deterioration in the standalone credit profile(s) of one or more major
operating units, (ii) a shift toward a less conservative financial
profile (for example, total consolidated leverage exceeding 30%,
or total leverage excluding railroad, utilities and energy exceeding
15%), (iii) losses from (re)insurance underwriting,
investments and/or derivatives causing a 15% decline in shareholders'
equity in a given year, or (iv) a significant decline in cash and
equivalents at or available to the parent (for example, declining
toward $20 billion, which management cites as a minimum balance).
Moody's has affirmed the following ratings:
Berkshire Hathaway Inc. -- long-term issuer
rating and senior unsecured debt at Aa2, senior unsecured shelf
at (P)Aa2, short-term issuer rating at Prime-1;
Berkshire Hathaway Finance Corporation -- backed senior
unsecured debt at Aa2, backed senior unsecured shelf at (P)Aa2;
The Lubrizol Corporation -- backed senior unsecured debt
at Aa2.
The rating outlook for these companies is stable.
The methodologies used in these ratings were Property and Casualty Insurers
published in May 2018 and Reinsurers published in May 2018. Please
see the Rating Methodologies page on www.moodys.com for
a copy of these methodologies.
Based in Omaha, Nebraska, Berkshire is a holding company engaged
through subsidiaries in diversified businesses that fall into five broad
segments: (re)insurance; railroad; utilities and energy;
manufacturing, service and retailing; and finance and financial
products. Berkshire also holds sizable minority interests in several
publicly traded firms through its portfolio of common stocks, held
mainly by its (re)insurance subsidiaries. Berkshire generated total
revenue of $184 billion and net income attributable to Berkshire
of $29 billion in the first nine months of 2018. The company
had total assets of $736 billion and Berkshire shareholders'
equity of $376 billion as of September 30, 2018.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Bruce Ballentine
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
