Kraft Issuing $6 Billion Of Bonds As Treasurys Rally
May 30 2012 - 2:55PM
Dow Jones News
Undeterred by the flight to safety that's pushing Treasury
yields to all-time lows, Kraft Foods Inc. (KFT) is issuing a $6
billion, four-part deal in the U.S. bond market Wednesday.
The company is issuing three-, five-, 10-, and 30-year notes
with spreads over Treasurys of 1.35 percentage points, 1.60 points,
2.0 points, and 2.35 points, respectively. The yield on each fell
0.05 points from earlier guidance, suggesting strong demand.
The bonds carry midtriple-B ratings. Bonds with those ratings
might risk a selloff when investors are rushing to safe havens, but
market participants say Kraft is able to benefit from the decline
in yields thanks to its household-name status.
Jesse Fogarty, portfolio manager at Cutwater Asset Management,
said high-quality industrial bonds are receiving strong demand
right now, as seen by the $38 billion order book last Thursday for
the $9.8 billion deal from United Technologies Corp. (UTX).
Kraft and others who sell staple consumer goods "will be viewed
as a safe haven from Europe and will be a source of yield as
Treasury yields fall," Fogarty said.
The UTX deal was the largest bond offering of 2012. Spreads on
parts of the six-part deal have widened Wednesday, but have
narrowed dramatically from their levels last week. The spread on
the 10-year piece was recently 1.09 percentage points, down from
1.35 at issue, according to MarketAxess.
Kraft is also benefiting from being the only sizable issuer in
Wednesday's new-deal market, said Timothy Cox, executive director
of debt capital markets at Mizuho Securities, a senior co-manager
on the sale.
"We've seen that these big trades can get done," he said. "[And
it certainly helps] when you have a rifle-shot approach, or a
single-trade to focus on."
The multiple-tranches also allow Kraft to access a range of
different investment accounts.
The deal, open only to qualified institutional investors, is
being run by Barclays, Citigroup, Goldman Sachs, J.P. Morgan, and
the Royal Bank of Scotland.
Kraft, which is selling the bonds through Kraft Foods Group
Inc., intends to use the proceeds for general corporate purposes,
and to repay some debt.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com
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