Posted by Bob O'Brien
March 25, 2009, 9:13 am
Warren Buffett has been heard to say that if his Berkshire Hathaway (BRKA) isn’t a triple-A rated credit risk, he couldn’t be sure what company would qualify. We can think of the five remaining nonfinancial companies that still hold the coveted top debt rating. But chances are that Berkshire, which isn’t included in that categorization anyway - it’s regarded as a financial company, and listed seperately - won’t be counted among those elite credits much longer.
Standard & Poor’s signalled it may move sometime in the next 12 months to reduce the AAA credit rating on Berkshire debt by one notch, similar to the move it made earlier this month on the credit rating of General Electric (GE). That reduced to just five the number of nonfinancial companies with the highest credit rating, the fewest number in memory.
The prospective move by S&P would effectively validate the rating change Fitch pulled the trigger on earlier this month, when it said that no financial company deserved a top credit rating, given the deterioration of the equities market, and the impact that has on investment portfolios. Berkshire has placed a host of bets in the derivatives market on the direction of global market indexes, many of which proved to be losers late last year.
Berkshire migh dodge this bullet from S&P if the deterioration of those markets is halted, and the capital at its insurance operations begins to expand again. But from this vantage, a cut to the credit rating at Berkshire - once regarded as unthinkable - looks increasingly likely.
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