Billionaire Warren Buffett’s venture into the energy utility business continues its focus on the lower-risk, steadier rewards inherent in prudently operated public utilities while passing on his Midas touch to a growing stable of companies, including PacifiCorp, Northern Natural Gas Co. and MidAmerican Energy Co., according to Standard & Poor’s Ratings Services (S&P).
Buffett’s Berkshire Hathaway has MidAmerican Energy Holdings Co. (MEHC) as its utility holding company, and S&P Wednesday affirmed the solid investment-grade credit ratings on the Buffett portfolio of utilities. The triple-A (“AAA”) rating for Berkshire was cited as a prime reason for the utilities keeping their solid “A-” ratings with a stable outlook.
Only MEHC interstate gas pipeline company Kern River Gas Transmission Co. carried a “CreditWatch with negative implications.”
“We expect MEHC to focus on its regulated business strategy and to execute on its objectives for PacifiCorp over time,” San Francisco-based S&P analyst Anne Selting said. “Berkshire Hathaway’s financial strength and stability has given MEHC financial flexibility and provided it with excellent access to capital to pursue opportune acquisitions.”
Selting noted that additional acquisitions would likely require an increase in the Berkshire equity commitment to sustain MEHC’s consolidated rating. “Also, we expect further acquisitions of the regulated utilities to be handled in a manner that continues to support the ‘A-‘ rating,” she said.
Berkshire Hathaway holds 88% of the MEHC common voting stock, and three senior members of Berkshire’s management team own the balance of the stock. At the end of the second quarter, MEHC had more than $19.2 billion of consolidated debt outstanding, of which more than 80% is held by Berkshire and its affiliates.
“The strong investment-grade ratings assigned to MEHC are based on the credit quality of its ‘AAA’-rated parent and the support provided by Berkshire Hathaway,” Selting said. “Absent this support, MEHC’s business and financial risk would support a rating that is in the low ‘BBB’ category.”
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