Warren Buffett's Berkshire Hathaway has changed in S&P's eyes

Credit ratings agency Standard & Poor's is formally acknowledging what Warren Buffett watchers have known for years: Berkshire Hathaway has transformed itself from an insurance holding company to a full-fledged corporate conglomerate.

That's the framework S&P is now using to analyze the company's creditworthiness.

Warren Buffett
David A. Grogan | CNBC
Warren Buffett

In a news release, S&P's Laline Carvalho is quoted as saying, "This change reflects our view of the increasing importance of Berkshire Hathaway's noninsurance businesses relative to the group's consolidated operations."

After its substantial noninsurance purchases in recent years, including the freight rail carrier BNSF and food giant Heinz, three-quarters of Berkshire's cash flow comes from its noninsurance businesses, S&P notes.

Word of the shift accompanies S&P's announcement that it is no longer considering a possible one- or two-notch downgrade of Berkshire's credit rating.

It was placed on what S&P calls "CreditWatch Negative" in August due to uncertainty over how Berkshire would pay for its $37 billion Precision Castparts acquisition.

At the time, Buffett acknowledged to CNBC that the 21 percent premium in the deal was a "very high multiple for us to pay" that would require about $10 billion of borrowing.

S&P says, however, that it has concluded the purchase is "neutral" to its AA rating of Berkshire's debt. That analysis was done after S&P decided to reclassify the company as a conglomerate.

The new "stable" outlook reflects S&P's expectation that Berkshire "will continue to report solid profitability metrics, significant cash flow generation and strong EBITDA margins in the next two years."

Prompted by Berkshire's big BNSF acquisition, S&P downgraded Berkshire to "AA+" from its top "AAA" rating in 2010.

It went to its current "AA" rating in 2013.

After Fitch and Moody's stripped Berkshire of its "AAA" ratings in 2009, Buffett told shareholders ,"We're still triple-A in my mind."

S&P, however, indicates it won't be raising Berkshire's rating in the next two to three years due to "operating and execution risks" related to the acquisition strategy of the newly minted "conglomerate."

Berkshire has a long-standing stake in Moody's, currently holding about $2 billion of the S&P competitor's stock.