OREANDA-NEWS. Fitch Ratings has assigned 'A+' ratings to seven new senior notes issued by Berkshire Hathaway Inc. (NYSE:BRK) and its wholly owned finance subsidiary Berkshire Hathaway Finance Corporation (BHFC) totalling $9 billion. The offerings include $5.5 billion of senior unsecured notes issued by BRK and $3.5 billion of senior notes issued by (BHFC) which are fully and unconditionally guaranteed by the parent.

The proceeds of the note issuances from BRK will be used to repay a $10 billion bank loan that was used to partially fund the acquisition of Precision Castparts Corp. (PCC) on Jan. 29, 2016 for approximately $37.2 billion, as well as to refinance $300 million of 2.2% senior notes that matured and were repaid on Feb. 11, 2016. The proceeds from the BHFC notes will be used to replace $500 million of 2.45% senior notes that matured and were repaid on Dec. 15, 2015.

KEY RATING DRIVERS

BRK's consolidated financial leverage ratio remained under 30% after the $9 billion debt issuance and the assumptions of $5 billion in PCC debt obligations. This level of financial leverage would not trigger any rating sensitivities, however, BRK is approaching Fitch's limits on financial leverage and interest coverage. Consequently, another material acquisition funded with significant amounts of debt would place downward pressure on BRK's ratings.

BRK acquired PCC for $235 per share or a total cost of $37.2 billion. PCC is a worldwide manufacturer of complex metal components and products, serving aerospace, power and general industrial markets.

PCC represents a noteworthy acquisition for BRK, but does not materially change the profile of the conglomerate. PCC's trailing 12 month consolidated revenue as of September 27, 2015 was $9.7 billion, which would amount to roughly 5% of BRK's total revenue. Further, PCC's near-term sales could be negatively impacted by challenges in the energy sector.

BRK's consolidated financial leverage ratio was 24.6% as of Dec. 31, 2015. Pro-forma financial leverage including the $9 billion of new senior notes and $5 billion of PCC net debt that was assumed in the acquisition was 27.6% at year-end 2015. Consolidated interest coverage in 2015 was 8.0x excluding realized investment gains, which is below Fitch's expectations of 12x for companies at BRK's rating level. An alternate calculation of interest coverage, excluding railroad, utilities and energy, was 18.3x in 2015 and is consistent with the current rating category.

RATING SENSITIVITIES

Key rating triggers that could lead to a future downgrade include:

--Deterioration in the credit quality of key insurance subsidiaries (National Indemnity, GenRe, and GEICO) that is no longer consistent with the current 'AA+' rating. Measures of credit quality include Fitch's judgment of capitalization, a total financing and commitments ratio greater than 1.5X, net leverage (excluding affiliated investments) over 3.5X or a sharp and persistent reduction in underwriting profits.

--A consolidated run-rate debt-to-total capital ratio that exceeds 30% or a run-rate debt-to-total capital ratio from the holding company, insurance and finance operations (including debt issued or guaranteed by the holding company) that exceeds 25%.

--Material increases in leveraged equity market exposure such as its equity index put derivative portfolio.

--Acquisitions or other actions that reduce outstanding cash below $10 billion or approximately 5x consolidated interest expense.

Key rating triggers that could lead to an upgrade include:

--A commitment to lower debt-to-tangible capital ratios attributed to the holding company, insurance and finance operations. Fitch believes that this would likely require the scaling back of the finance operations.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following ratings:

Berkshire Hathaway, Inc.
--$1 billion 2.2% senior notes due March 2021 at 'A+';
--$2 billion 2.75% senior notes due March 2023 at 'A+';
--$2.5 billion 3.125% senior notes due March 2026 at 'A+'.

Berkshire Hathaway Finance Corporation (BHFC)
--$750 million 1.45% senior notes due March 2018 at 'A+';
--$1.25 billion 1.7% senior notes due March 2019 at 'A+';
--$1.0 billion floating rate senior notes due March 2018 at 'A+';
--$500 million floating rate senior notes due March 2019 at 'A+'.