Fitch downgrades Kraft, Cadbury ratings

by Eric Schroeder
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CHICAGO — Fitch Ratings on Jan. 20 downgraded certain ratings of both Kraft Foods Inc. and Cadbury P.L.C. following Kraft’s revised offer for London-based Cadbury.

Fitch downgraded Kraft’s issuer default rating to BBB- from BBB; senior unsecured debt to BBB- from BBB; credit facility to BBB- from BBB; short-term issuer default rating to F3 from F2; and commercial paper to F3 from F2.

The ratings agency said the downgrades “consider the strategic benefits of combining Kraft’s and Cadbury’s existing confectionery businesses.”

“The combination with Cadbury strengthens Kraft’s platform in confectionery, and provides it with greater geographic reach, particularly in faster growing developing markets such as India,” Fitch said. “Kraft’s ratings continue to reflect the company’s prominent size and scale within the global packaged foods industry, its leading market share positions in many categories and several strong brand equities.”

With free cash flow expected to be used for debt reduction, Fitch said it will be critical for Kraft to refrain from share repurchases in the near term.

The downgrades for Cadbury included the company’s long-term issuer default rating to BBB- from BBB and short-term issuer default rating to F3 from F2. Fitch also removed Cadbury’s rating watch from negative, where it had been since Sept. 8, 2009, to stable.

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