Capital Markets

Kraft Takes a Euro (Bond) Vacation

It's the latest of several big offerings, at $4.4b, to help refinance its Danone acquisition.
Stephen TaubMarch 12, 2008

Kraft Foods Inc. is pricing a $4.4 billion bond offering to be issued in euros (2.8 billion) in two parts.

The offering includes a four-year, 2 billion euro tranche and a seven-year, 850-million euro bond, according to Reuters.

Kraft is using the proceeds to partially refinance its 5.3 billion euro acquisition of Danone biscuit, according to earlier press reports. If the offering is successful, it will further signal that the European bond market is slowly coming back to life.

Kraft, the food products giant based in Northfield, Ill., didn’t return a phone call and e-mail message from CFO.com seeking comment.

To be sure, Kraft is the kind of conservative, plain-vanilla issue that institutional investors seemingly are warming up to. The company is rated A- by Standard & Poor’s, Baa2 by Moody’s Investors Service, and BBB by Fitch Ratings.

In the last two weeks, at least three other issues successfully came to market, according to a report in the Wall Street Journal. The paper said there had been strong demand for a $1.4 billion, 31-year bond from GlaxoSmithKline PLC, a $1.08 billion eight-year bond from Severn Trent PLC, and two new issues from British American Tobacco PLC.

BAT, which offered seven-year euro bonds and 15-year sterling bonds, are rated Baa1/BBB by Moody’s and Standard & Poor’s, respectively.

“European investors have a lot of cash available, and they are just waiting for credits like this,” Terence Shanahan, head of European bond syndication at Société Générale in London, told the paper.

The report noted that if the Kraft sale is successful, syndicate bankers believe other investment-grade companies could come to market, including German energy company E.On AG, tire-maker Continental AG, Telekom Austria AG, U.K. utility National Grid PLC and Imperial Tobacco Group PLC.

“At current spreads, credit and non-credit investors alike are asking the obvious question — how much wider can we go?” Ashish Shah, credit analyst at Lehman Brothers in New York, told the Journal.