S&P cut to rating over railroad buy puts up price of borrowing
Standard & Poor's has cut Warren Buffett's Berkshire Hathaway AAA rating to AA+, saying its acquisition of the Burlington Northern Santa Fe rail firm will hurt liquidity and capital adequacy, Reuters reports.
The outlook is stable, which typically means that S&P does not expect another rating action over the next two years. S&P is the third major rating agency to cut Berkshire's top AAA rating.
"We believe that the railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity, and that investment risk with sizable concentrations remains very high," S&P said in a statement.
Uncertainty about management succession after Buffett, who is 79, eventually steps down is also an ongoing concern, the rating agency said.
Bond pricing
Dow Jones added that Berkshire’s new three-year fixed-rate note to fund the railroad buy was priced at 0.25 of one percentage point more than its existing debt because of the S&P downgrade.
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