Berkshire Hathaway (BRK.A) Credit Risk Drops To 17-Month Low Despite Downgrades

Bloomberg has reported that despite the downgrades to Berkshire Hathaway, Inc. (NYSE: BRK.A), investors showed their faith, and pushed the price of default protection on the firm. Berkshire credit-default swaps fell to their lowest level in 17 months, ending at 128.1 basis points yesterday in New York. The swaps reached 127.6 on Sept. 22, 2008. That compares with 130.4 on Feb. 19 and 525 basis points on March 5, 2009.

Berkshire was downgraded by Standard & Poor, Fitch Ratings, and Moody’s (NYSE: MCO), leaving it without a top rating at any of the three biggest credit-rating companies.

Bill Bergman, an analyst with Morningstar, Inc. (NASDAQ: MORN) said, “The market’s increasingly recognizing the fundamental creditworthiness of Berkshire. They’ve cemented their position in the marketplace.”Berkshire recovered from a $1.5 billion loss in Q1 2009 as the Standard & Poor’s 500 Index (SPX) surged 40% in the last nine months of the year. Berkshire’s stock portfolio increased to more than $55 billion, and the company’s liability fell for multiyear bets it made on the direction of world equity markets.

Buffett took pre-emptive action to help Berkshire weather the U.S. recession, by stockpiling $44 billion in cash. Using that hoard, Berkshire financed Goldman Sachs Group, Inc. (NYSE: GS), General Electric Co. (NYSE: GE), Swiss Reinsurance Co., and the Mars, Inc. takeover of chewing-gum maker Wm. Wrigley Jr. Co. These transactions are paying coupons that boosted investment income in the first nine months of last year.

This year, Buffett also acquired Burlington Northern Santa Fe Corp. (NYSE: BNI), for $27 billion.