New York - Berkshire Hathaway is at risk of losing its "AAA" credit rating from Standard & Poor's after the ratings agency revised its outlook on billionaire Warren Buffett's company to "negative" from "stable."
Citing worsening market conditions that have hurt Berkshire's financial condition and investment portfolio, S&P said late on Tuesday that it assigned the "negative" outlook to the Omaha, Nebraska-based parent company. The "negative" outlook also applies to Berkshire Hathaway Finance, and Berkshire's core insurance companies, including Berkshire Hathaway Assurance Corp.
Berkshire Hathaway's Class A shares fell $1 650, or nearly 1.9%, to close at $86 850 apiece on Wednesday. Those shares are still the most expensive US stock, but have lost nearly 43% of their value since setting a high of $151 650 in December 2007.
S&P credit analyst John Iten said a decline in stock values this year "has reduced the statutory capital of the insurance operations."
The negative outlook signals that downgrades could be possible if business conditions worsen. S&P meanwhile affirmed all of its ratings on the Berkshire companies, including its "AAA/A-1+" counterparty credit rating on Berkshire.
S&P said its negative outlook applies to the next 12 months. S&P said Berkshire could regain a stable outlook if its stock holdings "were to stabilise or improve during this period, or if it appears that the group will be able to rebuild its capital position back to a level commensurate with the current ratings."
A lower rating could be triggered if stock markets continue to deteriorate and further erode Berkshire's capital position, S&P said. A lower rating also could be triggered if Berkshire's insurance group is unable to restore capital back to the "AAA" level through capital contributions from non-insurance operations or other outside sources.
"We do not currently anticipate that any possible downgrade of the insurance company ratings would be by more than one notch," S&P said.