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Announcement:

Moody’s maintains Aa2 rating on Berkshire Hathaway Finance Corp’s upsized senior note issuance

07 March 2019

Company increasing 30-year note issuance by $750 million to a total of $2 billion

New York , March 7, 2019 – Moody's Investors Service maintains a Aa2 rating on Berkshire Hathaway Finance Corporation's (BHFC's) 30-year senior unsecured note issuance, which the company is upsizing by $750 million to a total of $2 billion. The notes are unconditionally and irrevocably guaranteed by BHFC's parent, Berkshire Hathaway Inc. (Berkshire, long-term issuer rating Aa2, short-term issuer rating Prime-1, NYSE: BRK), and are issued off Berkshire's multi-purpose shelf registration. BHFC expects to use net proceeds of the incremental borrowing to refinance existing debt. The rating outlook for Berkshire and BHFC is stable.

RATINGS RATIONALE

A majority of BHFC's assets are term loans to Vanderbilt Mortgage and Finance, Inc. and 21st Mortgage Corporation, indirect wholly owned subsidiaries of Clayton Homes, Inc. (Clayton) and of Berkshire. These Clayton subsidiaries provide installment financing to certain purchasers of homes sold by Clayton, and also make bulk purchases of contracts and notes from banks and other lenders. BHFC also provides financing to the tank car and crane leasing business of Berkshire's indirect wholly owned subsidiary, UTLX Company. BHFC had total borrowings of $10.7 billion at December 31, 2018. Given the Berkshire guarantee, Moody's expects that BHFC can readily repay or refinance its debts as they come due.

Berkshire's ratings reflects its highly capitalized (re)insurance operations and its well diversified earnings and cash flows from 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 $25 billion in 2018, up from $14 billion in 2017, with significant earnings growth in all segments. The reduced US corporate tax rate, lower catastrophe losses and supportive economic conditions drove much of the improvement.

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).

Based in Omaha, Nebraska, Berkshire is a holding company engaged through subsidiaries in diversified businesses that fall into four broad segments: (re)insurance; railroad; utilities and energy; and manufacturing, service and retailing. 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 $248 billion, net operating earnings of $25 billion and net income attributable to Berkshire of $4 billion in 2018. Net unrealized losses on investments in equity securities accounted for most of the difference between operating earnings and net income. Berkshire had total assets of $708 billion and Berkshire shareholders' equity of $349 billion as of December 31, 2018.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Bruce Ballentine
VP-Sr 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

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