Rating agency Standard & Poor's lowered one of Berkshire Hathaway Inc.'s credit ratings by a notch Thursday, a day after another agency, A.M. Best, kept the Omaha investment company's ratings at the top. Both urged more clarity on Warren Buffett's successor.
S&P said it dropped the credit rating to AA from AA+ and set a negative outlook on all its Berkshire ratings under a revised rating system.
S&P analyst John Iten said the lower rating reflects the view that Berkshire depends on its core insurance operations for most of the income that adds to the company's growth, a structure more consistent with other AA-rated insurance companies.
Iten said the negative outlook is because S&P's revised system limits its rating of U.S. government debt to AA+ with a negative outlook, with corporate ratings lower, and because a large acquisition by Berkshire would reduce the capital — currently about $50billion — that it holds to back up its insurance risks.
Ratings agencies have been under pressure to make their ratings more accurate since the 2008 financial meltdown, when some highly rated companies had serious problems. S&P's downgrade is similar to recent rating changes by Moody's Fitch. Berkshire is Moody's largest shareholder.
S&P affirmed its AA+ credit and financial strength rating of Berkshire's core insurance companies, saying they have an “excellent business risk profile and very strong financial risk profile based on an extremely strong competitive position and very strong capital and earnings.”
S&P also set an AA rating, slightly below the top, for $1 billion in bonds recently issued by Berkshire to refinance debt at lower rates. S&P said the issue of who will succeed Buffett, the chairman and CEO, partly offsets Berkshire's financial strength.
On Wednesday, A.M. Best affirmed its top-of-scale A++ Berkshire rating but said Buffett's importance to the company and a “lack of transparency” about his successor “definitely pose a risk to the organization and is a continuing concern.”
Buffett, 82, has not named a successor but has said that Berkshire's board of directors agrees on a CEO candidate and two backups, all highly qualified and ready in case one is needed.
This report includes material from Bloomberg News.
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