Berkshire Hathaway Raised to Stable at S&P on Capital Levels

Jun 23, 2014 2:46 pm ET

(Updates with cash in the sixth paragraph, comment on energy investments in the seventh, trading in eighth.)

June 23 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. had its credit outlook raised to stable from negative at Standard & Poor’s as the company’s capital position strengthened. The AA rating was affirmed.

“Capital adequacy has improved since 2013,” the ratings firm said today in a statement about Omaha, Nebraska-based Berkshire. “The insurance operating companies will maintain extremely strong capitalization and sustained operating performance at or beyond our base-case scenario.”

Berkshire had the top credit rating from S&P, Fitch Ratings and Moody’s Investors Service as recently as 2009. The company was stripped of its AAA at S&P in 2010 after agreeing to buy railroad Burlington Northern Santa Fe for $26.5 billion. Fluctuations in the value of Buffett’s equity investments have also weighed on the company’s creditworthiness, S&P said.

“We believe BRK will remain subject to an aggressive acquisition strategy,” S&P said in today’s statement, referring to the company by its ticker symbol. “This risk is largely offset by the strength and stability of earnings generated by the consolidated group.”

As Berkshire’s chairman and chief executive officer for more than four decades, Buffett, 83, built the firm from a textile maker into a company that sells insurance, hauls freight, generates electricity, manufactures chemicals and sells products from diamonds to underwear. The billionaire has used funds from insurance units including Geico to buy stocks and make acquisitions.

Berkshire’s Cash

Berkshire’s cash pile stood at $48.9 billion as of March 31, up from $48.2 billion three months earlier. Buffett has been shifting his company toward businesses like energy and railroads that provide opportunities for billions of dollars in capital spending and relatively stable returns tied to the growth of the U.S. economy.

“We’ve poured billions and billions and billions of dollars in retained earnings, and several billion of additional equity,” into the energy business, Buffett said this month at a conference in Las Vegas. “And we’re going to keep doing that as far as the eye can see.”

Berkshire’s Class A shares fell 0.4 percent to $189,753.50 at 1:39 p.m. in New York. The stock has gained 6.7 percent this year. The company’s $1.25 billion of 5.4 percent bonds coming due in May 2018 traded at 114.5 cents on the dollar to yield 1.5 percent today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

--With assistance from Sridhar Natarajan in New York.