Berkshire Hathaway is well on its way, having been granted licenses by 48 states and the District of Columbia. The new bond insurer makes its debut amid a rocky municipal auction rate market.
Some of Buffett's competing bond guarantors have been downgraded, and worried investors have sold billions of dollars of municipal debt backed by these companies and some of their rivals, which also were caught up in the subprime nightmare.
This has left some U.S. states, cities and agencies eager for a new insurer with a triple-A rating. Investors are keen on divesting themselves of bonds from insurers they deem tainted, and thus are welcoming a new and solid company.
According to S&P, its rating on the new Berkshire Hathaway Assurance also reflects a guaranty by Buffett's Columbia Insurance Co. that extends Columbia's "AAA" rating to the new insurer. This achievement comes as good news at a time when the troubled $2.6 trillion bond insurance industry have been the focal point of a widening credit crisis as expected losses in mortgage-backed debt put the insurers' ratings at risk.
Traditionally focused on insuring municipal deals, bond insurers got into trouble after they ventured into structured products to boost returns.
Massive delinquencies on U.S. subprime mortgages battered the credit quality of these products, increasing the capital that bond insurers need to maintain their crucial "AAA" ratings.
As bond insurers' ratings are downgraded, so are ratings on much of the debt they insure, forcing sales by some investors who can only own top-rated securities. The loss of a top "AAA" rating also undercuts the value of bond insurance, making it difficult for the companies to win business.