Standard & Poor’s has assigned its ‘AAA’ senior debt rating to Berkshire Hathaway Finance Corp.’s (BHFC) $500 million private-placement debt securities offering.
BHFC is a financial subsidiary of Berkshire Hathaway Inc., which fully guarantees this new issuance. The notes will be issued with seven-year maturities. The net proceeds of this issuance are expected to be used to fund the finance operations of Vanderbilt Mortgage and Finance Inc., a wholly owned subsidiary of Clayton Homes Inc. (Clayton). Clayton is a vertically integrated manufacturing housing company.
The rating is based on the parent’s extremely strong financial flexibility and earnings diversification and its insurance operations’ extremely strong consolidated capital adequacy. Partially offsetting these strengths is the company’s exposure to market risk, execution risk in managing an amalgam of disparate risks, and reinsurance operations’ susceptibility to loss severity.
Based on pro forma third-quarter 2003 results, BHFC’s financial leverage (debt to total capital) was about 10 percent following adjustments for this new debt securities issuance. Corresponding pro forma interest coverage on an EBITDA basis, excluding realized capital gains, was more than 40x.
Standard & Poor’s believes BRK will maintain its extremely strong financial leverage and insurance operations’ consolidated capital adequacy, supported by a strong, diversified earnings stream. Although BRK is exposed to the potential negative earnings effect of large loss events and investment risk, its prospective financial leverage and interest coverage will remain well within the range for the rating category.
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