Moody's reviews Kraft for possible downgrade

by Eric Schroeder
Share This:

NEW YORK — Moody’s Investors Service placed the Baa1 senior unsecured and Prime-2 short-term ratings of Northfield, Ill.-based Kraft Foods Inc. and its subsidiaries under review for possible downgrade following the company’s announcement it has bid to acquire the global biscuit business of Groupe Danone for €5.3 billion ($7.2 billion), and would fund the purchase primarily with debt.

Moody’s said the review is based on "the significant increase in leverage" that would result from the debt-financed transaction, as well as what it believes is "a further shift toward a more aggressive financial policy." In addition, the review reflects "the added challenge of integrating a large international business at a time when Kraft is in the midst of a $3 billion restructuring, and is in the process of revamping its vast product portfolio," Moody’s said.

Moody’s did indicate that if a downgrade were to occur, Kraft most likely would retain an investment grade rating.

Kraft plans to fund the acquisition with $7 billion in Euro-denominated debt financing, which would be incremental to the at least $2 billion of other borrowings that Moody’s estimates will be needed to fund the two-year $5 billion share repurchase plan announced earlier this year.

"The proposed transaction appears to be a good fit with Kraft’s own biscuit business and helps Kraft to expand in Europe and emerging markets, but it also signals a more aggressive posture with respect to financial policy, and an apparent willingness to trade off some credit quality to meet shareholder demands for better returns," said Brian Weddington, vice-president, senior analyst, Moody’s Investors Service.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.



The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.