Fitch Affirms Berkshire Hathaway Inc.'s Issuer Default Rating

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has affirmed Berkshire Hathaway Inc.'s BRK Issuer Default Rating at 'AA-' and senior unsecured debt at 'A+'. The Rating Outlook is Stable. A complete list of ratings and rating actions follows at the end of this release.

KEY RATING DRIVERS

Fitch's rating action follows Berkshire Hathaway's announcement of a definitive agreement to acquire Precision Castparts Corp. (PCP) for $235 per share. The transaction is valued at approximately $37.2 billion, including outstanding PCP debt. PCP is a worldwide manufacturer of complex metal components and products, serving aerospace, power and general industrial markets.

Berkshire will finance the transaction with approximately $23 billion in cash and issue approximately $10 billion in debt. The deal is expected to close in the first quarter of 2016. BRK's consolidated financial leverage ratio was 25% as of June 30, 2015 and Fitch estimates this ratio remaining below 30% including PCP's $5.3 billion in debt and assuming BRK issues $10 billion in new debt. This level of financial leverage would not trigger any rating sensitivities which are detailed at the end of the release.

PCP represents a noteworthy acquisition for BRK, but does not materially change the profile of the conglomerate. PCP reported sales of $10 billion in fiscal 2015 compared to BRK's total revenue of $194 billion for the full year 2014. Over the same period, PCP reported net income of $1.5 billion, while BRK reported $20.2 billion in net income.

Following this acquisition of PCP, BRK is approaching Fitch's limits on financial leverage and interest coverage. Consequently, another material acquisition similarly or more aggressively financed than the PCP acquisition would place downward pressure on BRK's ratings.

Consolidated interest coverage for the first six months of 2015 was 7.5x excluding realized investment gains, which is below Fitch's expectations of 12x for companies at BRK's rating level. An alternate calculation of interest coverage, excluding railroad, utilities and energy, was 14.3x during the first six months of 2015 and is consistent with the current rating category.

RATING SENSITIVITIES

Key rating triggers that could lead to a future downgrade include:

--Deterioration in the credit quality of key insurance subsidiaries (National Indemnity, GenRe, and GEICO) that is no longer consistent with the current 'AA+' rating. Measures of credit quality include Fitch's judgment of capitalization, a total financing and commitments ratio greater than 1.5X, net leverage (excluding affiliated investments) over 3.5X or a sharp and persistent reduction in underwriting profits.

--A consolidated run-rate debt-to-total capital ratio that exceeds 30% or a run-rate debt-to-total capital ratio from the holding company, insurance and finance operations (including debt issued or guaranteed by the holding company) that exceeds 25%.

--Material increases in leveraged equity market exposure such as its equity index put derivative portfolio.

Acquisitions or other actions that reduce outstanding cash below $10 billion or approximately 5x consolidated interest expense.

Key rating triggers that could lead to an upgrade include:

--A commitment to lower debt-to-tangible capital ratios attributed to the holding company, insurance and finance operations. Fitch believes that this would likely require the scaling back of the finance operations.

Fitch has affirmed the following ratings:

Berkshire Hathaway, Inc.

--Issuer Default Rating (IDR) at 'AA-'.

--$300 million 0.8% senior notes due Feb. 2016 at 'A+';

--$750 million 2.20% senior notes due Aug. 2016 at 'A+';

--$1.1 billion 1.9% senior notes due Jan. 2017 at 'A+';

--$800 million 1.55% senior notes due Feb. 2018 at 'A+';

--$750 million 2.1% senior notes due Aug. 2019 'A+';

--$500 million 3.75% senior notes due Aug. 2021 at 'A+';

--$600 million 3.40% senior notes due Jan. 2022 at 'A+'

--Euro 750 million 0.75% senior notes due March 2023 at 'A+';

--$500 million 3.0% senior notes due Feb. 2023 at 'A+';

--Euro 1.25 billion 1.125% senior notes due March 2027 at 'A+';

--Euro 1 billion 1.625% senior notes due March 2035 at 'A+';

--$1 billion 4.5% senior notes due Feb. 2043 at 'A+'.

Although BRK's General Reinsurance Corp. subsidiary participated directly in the rating process, BRK did not participate other than through the medium of its public disclosure.

Additional information is available at www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989289

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989289

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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