Credit protection costs for Warren Buffett's Berkshire Hathaway Inc
Fitch Ratings late Thursday downgraded Berkshire's rating to AA-plus from AAA, and its senior unsecured debt rating to AA from AAA. Its outlook is negative, meaning another cut is possible within a couple of years.
The rating agency said Berkshire's equity and derivatives holdings leave the Omaha, Nebraska-based company's earnings stream and capital volatility inconsistent with the stability required at the 'AAA' level.
Fitch also said its downgrade reflects so-called key man risk, in that Berkshire's track record and ability to find companies to buy is intimately tied to Buffett. It said this risk factor has grown larger in the current stressful economic environment and is unrelated to Buffett's age, 78.
Standard & Poor's would have cause to give Berkshire a negative outlook if the company's capital position continued weakening this year and if S&P thought Buffett's firm would be unable to rebuild its capital through earnings, an analyst for the rating agency said.
Warren Buffett has been there for a long time, so the concentration of risk from that is not a new issue for us, said S&P analyst Damien Magarelli, addressing the key man issue.
Berkshire did return a telephone call seeking comment on Fitch's action, and Moody's did not respond to an inquiry on what action it might take regarding Berkshire's rating.
Five-year credit default swaps for Berkshire fell on Friday to 417 basis points, or $417,000 a year to protect $10 million of debt, from 438 basis points at Thursday's close, according to data from CMA DataVision.
The lower cost reflected market optimism that the rating cut did not go beyond one notch. It nevertheless suggests that Berkshire's credit risk is close to that of emerging market nations such as Peru, Turkey and Colombia, which trade between 421 and 452 basis points, according to Markit Intraday.
Berkshire lost its AAA rating from Fitch the same day that S&P took away General Electric Co's
Separately, Berkshire in a regulatory filing said Buffett was awarded about $491,000 of compensation in 2008, including a $100,000 salary, $75,000 of director fees, and $315,709 of personal and home security services.
Buffett's salary has been unchanged for more than a quarter century. Buffett this week lost his position as the world's richest person to Microsoft Corp
In afternoon trading, Berkshire Class A shares were down $2,150, or 2.5 percent, at $83.550.
(Reporting by Walden Siew; Editing by Jonathan Oatis)