Jumbo bond sale awaited from Kraft for Cadbury buy

By Dena Aubin

NEW YORK, Jan 25 (BestGrowthStock) – Kraft Foods’ acquisition of
Cadbury is expected to trigger the next blockbuster sale in the
global corporate bond market as the company refinances an $11.5
billion bridge loan used to temporarily fund the deal.

The world’s second-largest food group, Kraft (KFT.N: ) is
expected to have no trouble drawing demand for a bond sale,
thanks to its investment-grade ratings, well-known brands and
expected benefits from the Cadbury (CBRY.L: ) merger.

“I think the market is going to be very receptive,” said
John Atkins, analyst at IDEAglobal in New York. “Just the
underlying cash flow prospects of the combined entity will be
enough to ensure that they have very ample market access,” he
said.

Kraft last week sealed a friendly deal to buy British candy
maker Cadbury after sweetening an initially spurned bid. Kraft
increased a temporary bridge loan to 7.1 billion pounds ($11.5
billion) from 5.5 billion pounds to temporarily fund its higher
offer.

The maker of Ritz crackers and Oreo cookies, Kraft will
benefit from the growth prospects of Cadbury’s sweets business,
which includes Dairy Milk chocolate and Trident gum, analysts
said.

“Even when consumers are feeling less wealthy, they may not
forego that dollar candy bar because it’s not killing their
wallets,” said Craig Hutson, analyst at independent research
service Gimme Credit. “It’s a relatively low-priced luxury
item.”

BORROWING COSTS AT MULTI-YEAR LOWS

In a conference call on Jan. 19, Kraft Chief Financial
Officer Tim McLevish said the company will consider all sources
to refinance the bridge loan but expects to use straight debt
in a mixture of currencies.

Analysts said they expect Kraft to sell the bonds in more
than one piece and to move soon while demand for corporate
bonds remains strong, possibly after the company’s 2009
earnings report. Kraft has not announced a release date for
earnings, but last year it reported on Feb 4.

A senior banker in London close to the deal said that about
50 to 70 percent of the bond financing could be ready to bring
to market quickly.

“They’ve got a lot to do and the market certainly isn’t as
ebullient as it was last month,” said Bob Bishop, senior
portfolio manager at SCM Advisors in San Francisco.

After one of their best years on record, corporate bonds
came under pressure last week as stocks suffered their worst
three-day slide in 10 months on fears that a White House plan
to curb bank risk-taking would cut profits.

Even so, the environment for issuing corporate bonds
remains strong, with borrowing costs the lowest in more than
five years.

Kraft’s success in keeping investment-grade ratings is also
a plus for the bond sale. Rating agencies have Kraft on review
for downgrade, but said they expect to keep the company above
junk status because of its commitment to reduce debt.

SUPPLY PRESSURES FEARED

Although Kraft’s ratings will be on the cusp of junk, it
should still have no trouble selling bonds, said IDEAglobal’s
Atkins. “You’re getting very little yield in risk-free assets,”
he said. “The quest for yield is now down in quality.”

Still, analysts said they are cautious about near-term
performance of Kraft’s bonds, since they have not yet weakened
to account for the upcoming bond supply.

“We think the bonds should trade wider than they do,” said
Gimme Credit’s Hutson.

Analysts at independent research service CreditSights also
said Kraft’s bonds have downside risk.

While the acquisition makes strategic sense, expanding
Kraft’s reach in developing markets, it will take some time to
repair the company’s balance sheet, said CreditSights analyst
Edward Mui.

Another hurdle for Kraft is that it is a frequent issuer,
and many investors already own its bonds.

“I think a lot of people are in the same boat that we are,
which is that we already have a nice position in it,” said SCM
Advisors’ Bishop. “If they price it cheaply we’d be happy to
buy more, but if they don’t, we’ll sit comfortably on what we
own,” he said.

Stock Market Research

(Additional reporting by Alex Chambers in London, Tom Ryan
and Walden Siew in New York and Brad Dorfman in Chicago;
Editing by Dan Grebler)

Jumbo bond sale awaited from Kraft for Cadbury buy