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Rating Action:

Moody's rates Berkshire senior notes Aa2, stable outlook

Global Credit Research - 05 Jan 2017

Berkshire Hathaway Inc. issuing €1.1 billion of fixed rate notes (four- and six-year); Berkshire Hathaway Finance Corporation issuing $1.3 billion of floating rate notes (two- and three-year)

New York, January 05, 2017 -- Moody's Investors Service has assigned Aa2 ratings to senior unsecured notes being issued by Berkshire Hathaway Inc. (Berkshire, NYSE: BRKA) and Berkshire Hathaway Finance Corporation (BHFC). Berkshire is issuing €1.1 billion of fixed rate notes (€550 million four-year and €550 million six-year), and BHFC is issuing $1.3 billion of floating rate notes ($950 million two-year and $350 million three-year) guaranteed by Berkshire. The notes are being issued off Berkshire's multi-purpose shelf registration. Berkshire expects to use net proceeds to repay $1.1 billion of notes maturing in January 2017, and BHFC expects to use net proceeds to repay $1.05 billion of notes maturing in January 2017. Any remaining proceeds will be available for general corporate purposes. The rating outlook for Berkshire and BHFC is stable.

RATINGS RATIONALE

Moody's said that Berkshire's ratings reflect its strong market presence in its principal (re)insurance operations, the diversification of its earnings from both regulated and non-regulated businesses, and its sound balance sheet. The ratings also incorporate the conservative operating and financial principles of the current management team. These strengths are tempered by potential earnings and capital volatility within the (re)insurance operations related to large, concentrated stock investments as well as large individual underwriting transactions. Other challenges for the company include enterprise risk management given the expanding business portfolio, and management succession given the critical role that CEO Warren Buffett has played in developing the culture and financial track record.

Berkshire reported solid performance through the first nine months of 2016, with after-tax operating income (which excludes investment and derivative gains/losses) of $13.2 billion, up from $12.7 billion in the first nine months of 2015. This change mainly reflects earnings from Precision Castparts Corp. and Duracell, acquired in early 2016, partly offset by lower earnings from the railroad segment and various manufacturing, service and retailing businesses.

As of 30 September 2016, Berkshire had consolidated cash and equivalents of $85 billion, a majority held within the (re)insurance operations, and a capital structure with total consolidated leverage of 29% (per Moody's calculations). The rating agency expects Berkshire to maintain at least $20 billion of cash and equivalents at or readily available to the parent company, and to gradually reduce its consolidated leverage through equity growth.

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, along with (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 (e.g., total consolidated leverage exceeding 30%, or total leverage excluding railroad, utilities and energy exceeding 20%), (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 (e.g., approaching $20 billion or less).

Moody's has assigned the following ratings to Berkshire Hathaway Inc.:

€550 million senior unsecured fixed rate notes due in January 2021 at Aa2,

€550 million senior unsecured fixed rate notes due in January 2023 at Aa2.

Moody's has assigned the following ratings to Berkshire Hathaway Finance Corporation:

$950 million senior unsecured floating rate notes due in January 2019 at Aa2,

$350 million senior unsecured floating rate notes due in January 2020 at Aa2.

The rating outlook for these issuers is stable.

The principal methodologies used in these ratings were Global Property and Casualty Insurers published in June 2016, and Global Reinsurers published in April 2016. Please see the Rating Methodologies page on www.moodys.com for copies of these methodologies.

Based in Omaha, Nebraska, Berkshire is a holding company engaged through subsidiaries in diversified businesses that fall into five broad segments: property & casualty (re)insurance; railroad; utilities and energy; manufacturing, service and retailing; and finance and financial products. Berkshire also holds meaningful minority interests in several prominent financial and consumer products firms through its portfolio of common stocks, held mainly by its (re)insurance subsidiaries. Berkshire generated total revenues of $166 billion and net income attributable to Berkshire of $18 billion in the first nine months of 2016. Shareholders' equity attributable to Berkshire was $269 billion as of 30 September 2016.

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: 212-553-0376
SUBSCRIBERS: 212-553-1653

Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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