Kraft Foods Inc.(Baa2 BBB-) said it began a cash tender offer for up to $1 billion of its notes.The offer, which expires Dec. 27, is for its 5.625 percent notes that are due in 2011 and its 6.25 percent notes due in 2012. Holders who tender their offer by Dec. 10 will get an early tender premium of $30 for every $1,000 in principal amount of the notes they turn over.Kraft Foods said it intends to fund the purchase of the notes with cash on hand and short-term borrowings.
KFT 6.25% '12 traded +52/2yr - tendering at +30/ T 0.75%5/31/12 + early tender premium of $30
GIS (Baa1/BBB+) 5.200 3/15 +54/5Y
GIS (Baa1/BBB+) 5.700 2/17 +65/7Y
HNZ (Baa2/BBB) 5.350 7/13 +45/3Y
KFT (Baa2/BBB-) 4.125 2/16 +105/5Y
Kraft is sitting on $2.3B in cash, but has 4x debt/EBITDA. Hopefully they will fund the tender from cash in order to de-lever the company and keep their ratings. Given the cash flow generation of the company, the name recognition of its brands and products and strategic positioning, I believe there is value in the debt and would be a buyer. The downside here will be the increased feedstock cost effect on cash flow.
This is my effort to help fit the pieces together to get a better picture of the capital markets.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
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