Buffett's Berkshire Hathaway avoids S&P rating downgrade

(Reuters) - Standard & Poor's on Friday left its "AA" credit ratings for Warren Buffett's Berkshire Hathaway Inc BRKa.N alone, saying the company's growing diversification and "modest" financial risks meant a downgrade was not necessary.

Warren Buffett, chairman and CEO of Berkshire Hathaway, takes his seat to speak at the Fortune's Most Powerful Women's Summit in Washington October 13, 2015. REUTERS/Kevin Lamarque

Berkshire had been put on review for a possible downgrade on Aug. 11, on concern about Buffett’s decision to deploy a large amount of cash toward last month’s $32 billion acquisition of industrial parts maker Precision Castparts Corp.

But S&P analyst Laline Carvalho said Berkshire’s “consistently strong” operating profitability and “exceptional” liquidity, plus the significant cash flow from its roughly 90 operating units, justify the “AA” rating, S&P’s third highest.

S&P also affirmed Berkshire’s “A-1+” short-term credit ratings, the highest possible, and its ratings for several insurance units, including Geico and General Re. It also raised its ratings for Berkshire’s BNSF railroad.

The agency also said it now analyzes Berkshire as a “corporate conglomerate” rather than as an “insurance holding company,” reflecting the growing importance of non-insurance businesses. It has a “stable” outlook for Berkshire’s ratings.

“Berkshire has demonstrated the financial flexibility to generate cash from many of its operating businesses, and is not reliant as much on its insurance units as we had thought,” Carvalho said in an interview.

Downgrades could have boosted Berkshire’s borrowing costs.

In recent years, Omaha, Nebraska-based Berkshire has diversified through big purchases such as Precision Castparts, BNSF, chemical company Lubrizol and Nevada utility NV Energy.

It also owns nearly 27 percent of Kraft Heinz Co KHC.O, which was created last year when Kraft Foods Group and H.J. Heinz Co merged. Berkshire bought about half of Heinz in 2013.

Buffett has said that excluding Kraft Heinz, Berkshire owns 10 companies large enough to be in the Fortune 500 if they were independent.

While insurance units now account for only about a quarter of overall results, they help Buffett fund acquisitions and investments by providing large amounts of “float,” or the amount of premiums held before claims are paid.

Insurance float totaled $86.2 billion as of Sept. 30.

Berkshire ended September with $66.26 billion of cash. Buffett has said he would spend $23 billion on Precision Castparts and finance the rest. He prefers keeping a large cushion for big insurance claims.

Berkshire held “triple-A” grades from all three major U.S. credit rating agencies as recently as 2009.

In afternoon trading, Berkshire’s Class A shares were up $820, or 0.4 percent, at $196,845.

Reporting by Jonathan Stempel in New York; editing by Lisa Von Ahn, Bernard Orr