Berkshire Hathaway Assurance Corp. lost its lone triple-A rating when it was downgraded to AA-plus by Standard & Poor’s Thursday.
The downgrade comes as a result of the planned purchase by BHAC’s parent, Berkshire Hathaway Inc., of a railroad company, Burlington Northern Sante Fe Railway Corp.
Standard & Poor’s downgraded Berkshire Hathaway Inc. and its core subsidiaries, including the municipal bond insurer, to AA-plus from AAA. The one-notch downgrade follows Standard & Poor’s Nov. 4, 2009, decision to place the parent company and its affiliates on negative watch. The outlook is now stable.
“We believe that the railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity, and that investment risk with sizable concentrations remains very high,” the rating agency said in a research report.
The $26 billion railroad purchase is pending shareholder approval.
Damien Magarelli, one of the report’s authors, said BHAC was downgraded “due to its financial relationship with the overall group of Berkshire [rather than] specific weaknesses, necessarily, within this bond insurance segment.”
The ratings report said Berkshire “has a high risk tolerance for capital volatility and investment risk.” It added that risk management has evolved less quickly than the organization’s complexity.
Ajit Jain, who heads BHAC, declined to comment on the downgrade with any specifics.
“Obviously we don’t like it, but I’m not telling you something you don’t know,” he said.
BHAC has not insured any municipal securities in the primary market since mid-April, according to Thomson Reuters. Data for the secondary market is not available, but Jain said penetration there has been “very limited.”
BHAC is rated Aa1 by Moody’s Investors Service, and is not rated by Fitch Ratings.
Shares in Berkshire Hathaways Inc. closed at $108,900.00, down 2.51% on the day.
