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S&P places Berkshire Hathaway’s credit rating on review after Precision deal

Last updated: 16:41 12 Aug 2015 BST, First published: 14:41 12 Aug 2015 BST

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A two-notch downgrade would reduce Berkshire's rating to "A-plus," a medium investment grade. Any downgrade may raise the Omaha, Nebraska-based company's borrowing costs.

Standard & Poor's Ratings Services placed Warren Buffett’s Berkshire Hathaway’s (NYSE:BRK.A) credit rating on review after the conglomerate agreed to buy Precision Castparts (NYSE:PCP) for about $32 billion. 

Berkshire has a AA rating from S&P, the third-highest of 10 investment-grade levels. 

The rating was placed on CreditWatch Negative, which implies that the ratings may be lowered or affirmed after the review. 

The agency may lower the rating by one or two notches within 90 days because of "uncertainty around the funding of the acquisition," and its impact on cash resources and leverage at the parent company, S&P analyst Laline Carvalho wrote in research note yesterday.

"We believe that to fund the acquisition, BRK is likely to use some of the capital resources available at its insurance companies," she noted.

A two-notch downgrade would reduce Berkshire's rating to "A-plus," a medium investment grade. Any downgrade may raise the Omaha, Nebraska-based company's borrowing costs. 

Berkshire had more than $66 billion in cash as of June 30, about $23 billion of which he plans to use for the Precision Castparts deal.

Buffett said on Monday after announcing the deal that he plans to borrow the remaining $10 billion. The target company, which makes turbine blades and fasteners for aircraft, also has more than $4 billion of debt.

Shares fell 1.2 percent to $212,000.00 at 9:39 a.m. in New York, expanding this year’s loss to 5.9 percent.

 

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