OMAHA, Neb. — Standard & Poor's has followed through on its warning and lowered Berkshire Hathaway Inc.'s long-term credit rating Thursday as the Omaha firm readies to acquire Burlington Northern Santa Fe Corp.
The ratings agency lowered Berkshire's rating one notch to "AA+" from "AAA," its highest designation.
S&P also removed the ratings from CreditWatch, where they were placed with negative implications in November, and called the outlook stable.
Berkshire Hathaway officials didn't immediately respond to a request for comment.
S&P said it expects a significant part of the cash portion to come from Berkshire Hathaway's core insurance operations, and the $26.3 billion railroad purchase will reduce the liquidity of the company's insurance operations.
Shareholders of BNSF are scheduled to vote on the proposed acquisition Feb. 11. The deal is expected to close by Feb. 15.
"The rating actions are based on our view that Berkshire's overall capital adequacy, as well as that of its insurance operations, has weakened to levels no longer consistent with a 'AAA' rating and is not expected to return to extremely strong levels in the near term," Standard & Poor's credit analyst John Iten said in a statement. "Furthermore, we expect that the consolidated liquidity position of Berkshire will be reduced from extremely strong historical levels as a result of the acquisition."
In the ratings agency's view, investment risk remains very high, "compounding the need for extremely strong capital and liquidity given potential investment volatility."
With the downgrade, just four U.S. industrial companies maintain S&P's "AAA" rating: Microsoft Corp., Exxon Mobil Corp., Johnson & Johnson and Automatic Data Processing Inc. More than a dozen U.S. financial institutions, including the Knights of Columbus and New York Life Insurance Co., hold the highest designation.
The acquisition of Burlington Northern Santa Fe, the nation's second-largest railroad, would be the biggest ever for Warren Buffett's Berkshire Hathaway investment company. Berkshire Hathaway, based in Omaha, Neb., owns a 22 percent stake in Burlington Northern and would buy up the rest under the deal.
Berkshire shareholders last month approved splitting the company's Class B shares 50-for-1 as part of the deal. The split will enable Berkshire to offer even small Burlington Northern shareholders Berkshire stock as part of the acquisition of the nation's second-largest railroad.
The stock split also made Berkshire's Class B stock much more affordable, at roughly $69 per share, which is expected to increase Berkshire's liquidity.
The Class A shares, which remain the most expensive U.S. stock at more than $100,000, won't be split. The Class A shares hold more voting rights than the Class B shares.
Berkshire Hathaway also filed documents Thursday indicating that it plans to sell $8 billion of debt to finance the acquisition using a combination of fixed-rate and floating-rate notes of various maturities.
The Class B shares fell $1.75, or 2.4 percent, to $72.61 in afternoon trading, losing 16 cents more in after-hours trading.