Kraft is tendering for $1.5 billion of its 5.625% notes due in 2011 and its 6.25% notes due in 2012, accelerating a significant amount of debt maturities. Moody’s said it expects Kraft to fund at least $1 billion of the tender offers with cash balances.
“The tender offers pulls forward meaningful amounts of Kraft’s 2011 and 2012 maturities and allays our concerns that its growing $2 billion in cash balances might be used for something other than debt reduction,” said Brian Weddington, a senior credit officer at Moody’s.
Also factoring into the stable outlook was Kraft’s repayment of $1.8 billion of debt after selling the DiGiorno pizza business and progress the company has made integrating the Cadbury business acquired in February.
“Kraft will be comfortably situated at the Baa2 rating category after it reduces debt to below 3.5 times EBITDA, a level the company should reach by the end of 2011,” Moody’s said.
Moody’s also acknowledged the possibility Kraft may receive a large cash payment from Starbucks in exchange for termination of its disputed retail licensing agreement to sell Starbucks-branded coffee. The agency said, though, “It is too early to estimate the amount, timing or use of such proceeds.”
The ratings action was Moody’s first for Kraft since the $19 billion Cadbury acquisition, when the ratings agency moved the Kraft outlook to negative from stable. With the transaction, Kraft debt ballooned to $31 billion, up$12 billion. Pro forma debt/EBITDA, as adjusted by Moody’s, was 4.4 times at closing.