Berkshire Hathaway, led by investing billionaire Warren Buffett, recently had its credit rating dropped from AA+ to AA. Their rating was cut by Standard & Poor’s rating services.
S&P made a statement that tells us that even though Berkshire Hathaway maintains an “excellent business profile,” the lesser credit rating “better reflects our view of BRK’s dependence on its core insurance operations for most of its dividend income.” (Standard & Poor’s statement has been posted on their website, but you cannot view it unless you are registered.)
Standard & Poor’s also makes mention that “management succession” is a factor in the way that they are thinking. The Financial Times had this to say:
“Mr. Buffett has said he and Berkshire’s board have decided who will follow him as chief executive, but they have chosen not to make it public. The company intends to split the chairman and chief executive role that Mr. Buffett plays, with his son serving as non-executive chairman.”
Warren Buffett is 82 years old.
The Financial Times also makes mention that “Mr. Buffett has a history of clashing with S&P. He criticized the agency in August 2011, when the credit rating agency downgraded the US’s sovereign debt rating, saying it ‘doesn’t make sense.’ A few days afterwards, S&P reduced its outlook on Berkshire Hathaway from ‘stable’ to ‘negative.’”
If you’re wondering what all of this will mean for Berkshire Hathaway, the MoneyBeat blog of The Wall Street Journal tells us the downgrade “will have little effect” on the borrowing cost of the company. They also report that the downgrade news has not prompted any of the firms dealing with Berkshire Hathaway to demand a need for more collateral, reports MoneyBeat.