Standard & Poor’s Ratings Services today said it assigned its ‘AAA’ rating on Berkshire Hathaway Finance Corp.’s (BHFC) senior unsecured notes, which are due on April 15, 2012.
“The rating on the new issue is based on the ratings on Berkshire Hathaway Inc. [BRK; AAA/Negative/A-1+], BHFC’s ultimate parent, reflecting BRK’s extremely strong competitive position, experienced and focused management team, very strong insurance and reinsurance capitalization, and extremely strong financial flexibility,” said Standard & Poor’s credit analyst John Iten. “Weaknesses to the rating include exposure to severe natural catastrophe losses, though these exposures are declining; high common stock exposure; and the significant amount of long-term claims payments assumed through retroactive reinsurance covers by National Indemnity Co., a BRK subsidiary.” A longer-term concern is whether BRK’s culture and risk profile will be maintained following a management change, though we expect no such change anytime soon.
BRK fully guarantees BHFC’s new note issuance. BHFC will use the net proceeds of this issuance to fund the finance operations (including replacement of some maturing debt and acquisition of loan portfolios) of Vanderbilt Mortgage & Finance Inc., a wholly owned subsidiary of Clayton Homes Inc. Clayton is a vertically integrated manufactured housing company.
BRK’s adjusted debt leverage and interest coverage (including the insurance and noninsurance operations but excluding MidAmerican Energy Holdings Co., a separately rated subsidiary of BRK) are conservative. Debt leverage was 14.5% at year-end 2008 and increases modestly to about 15% on a pro forma basis with this note issue. Interest coverage was 13.2x in 2008