Standard & Poor's Tuesday night affirmed the AAA rating of Berkshire Hathaway Inc. and its insurance subsidiaries, including bond insurer Berkshire Hathaway Assurance Corp., but revised the outlook on the entities to negative from stable.

Standard & Poor's cited the decline in the value of Berkshire's equity holdings for the downgrades. The outlook's time horizon is 12 months, the rating agency said.

"The decline in equity values in 2009 has reduced the statutory capital of the insurance operations, and a preliminary analysis of the group's capital adequacy indicates that the group's capital is no longer redundant at the AAA level," credit analyst John Iten said in a statement.

Standard & Poor's said it will raise the outlook back to stable if the value of Berkshire's equity investments stabilizes or improves, or if it can raise its capital position to adequate levels within "a reasonable period of time," which is typically one to two years. If not, it's unlikely any downgrade would be more than one notch, the agency said.

Fitch Ratings earlier this month downgraded Berkshire, saying it did not believe any financial institution should be AAA at the holding-company level given current market conditions. Fitch does not rate bond insurer BHAC, which has maintained a limited presence in the primary municipal marketplace.

BHAC-insured paper currently trades better than that insured by Assured Guaranty Corp. and Financial Security Assurance Inc., which have both been downgraded by Moody's Investors Service. Moody's has questioned the viability of any stand-alone financial guarantor holding a Aaa rating, and said BHAC is rated that high only because of a guaranty from affiliate Columbia Insurance Co.

If Berkshire were downgraded, the spread between its guarantees and that those of Assured and FSA could narrow, according to Guy LeBas, fixed-income strategist at Janney Montgomery Scott LLC.

"The downside is, at present BHAC is really the only insurer that's truly being given value as the highest quality insurer, and I suspect some of that value will go away if they're downgraded," LeBas said.

In the primary market, Berkshire this year has insured just three issues with a par value of $241.4 million, according to Thomson Reuters. Last year, the bond insurer wrapped 22 new issues with a par value of $3.3 billion.

Chairman Warren Buffett explained in a letter to shareholders earlier this year that Berkshire remains "very cautious" about new public finance it writes and regards "it as far from a sure thing that this insurance will ultimately be profitable."

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