Fitch May Cut Berkshire Rating on Burlington Buy

November 6, 2009

Fitch Ratings said Thursday it may cut its ratings on Warren Buffett’s Berkshire Hathaway Inc on concerns about the effect its planned acquisition of Burlington Northern Santa Fe Corp. will have on its asset profile and capitalization.

Fitch said it may cut Berkshire from AA-plus, the second-highest investment grade. The move comes a day after Standard & Poor’s said it may cut Berkshire from its top AAA rating [See IJ web site –].

The acquisition of Burlington and other utilities, energy and finance company subsidiaries would shift Berkshire’s asset profile to have a higher concentration in companies that have more leverage, Fitch said.

Many of the companies are also more sensitive to general economic conditions than Berkshire’s long-held insurance and holding company equity-oriented investments, the rating agency added.

Berkshire said on Tuesday it agreed to pay $26 billion in cash and stock to buy Burlington in a bet the railroad operator will benefit from a recovering U.S. economy.

The acquisition will be funded by around $8 billion in additional debt in addition to Berkshire’s assumption of about $10 billion in Burlington debt, Fitch said, which would cause a meaningful increase in Berkshire’s leverage.

Moody’s Investors Service affirmed Berkshire’s Aa2 rating on Tuesday, the third highest investment grade, saying it expects Berkshire to keep a large cash balance and conservative financial profile, consistent with its long-standing practice.

Moody’s downgraded the company from its top rating in April, while Fitch cut Berkshire to AA-plus in March.

“The ratings don’t matter,” as evidenced by the fact that Buffett has been selling his stock in Moody’s, said James Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia.

Berkshire Hathaway, the largest Moody’s shareholder, said in July it had cut its stake to 16.98 percent from 20.4 percent, the first reported reduction since 2000.

Berkshire Class B shares fell 0.2 percent to $3,373 on the New York Stock Exchange.

(Reporting by Karen Brettell and Dena Aubin; editing by Jeffrey Benkoe)

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