By Andrew Frye and Jamie McGee
Feb. 10 (Bloomberg) — Billionaire Warren Buffett’s Berkshire Hathaway Inc. had its credit grade cut two levels by Fitch Ratings after the company agreed to buy railroad Burlington Northern Santa Fe Corp.
“The downgrades reflect Fitch’s concerns about the Burlington Northern acquisition’s effect on Berkshire’s asset profile, capitalization, and interest coverage,” the ratings company said in a statement today. The firm was also cut because of its “significant equity market exposure.”
Fitch was the first of the three largest credit-rating companies to strip Berkshire of its gold-standard AAA rating last March, citing the effect of falling stock markets on the Omaha, Nebraska-based company’s derivative bets. Moody’s Investors Service followed a month later, and Standard & Poor’s removed its top rating last week.
Berkshire is taking on debt, drawing down cash and issuing shares to fund the $26 billion takeover of Burlington Northern. Buffett, 79, has called the railroad takeover an “all-in wager” on the U.S. economy.
“Berkshire’s financing of the Burlington Northern acquisition is expected to result in a meaningful increase in financial leverage,” Fitch said in the statement.
Fitch cut Berkshire’s issuer default rating to AA- from AA+ and lowered the insurer financial strength rating to AA+ from AAA. It changed its rating outlook to “stable” from a “negative” ratings watch.
Berkshire Class A shares fell $35 to $111,665 at 12:58 p.m. in New York Stock Exchange composite trading. Buffett’s company has climbed 27 percent in the past year.
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