Commentaries
Now raising intellectual capital
Kraft moving ahead with financing
Why let a little rejection stand in your way? Kraft is proceeding with the financing it would need to buy Cadbury, even though the U.K. confectioner spurned the initial offer. It looks like it’s financing plans are above what had been initially expected, which could mean slightly more new cash could be added to a revised bid.
Credit Suisse had put the new debt at $6.667 billion. Bloomberg reports it looks more like $8 billion.
Kraft Foods Inc., the world’s second-largest foodmaker, is in talks to arrange about $8 billion of financing for its bid to buy candy maker Cadbury Plc, according to two people with knowledge of the matter.
Citigroup Inc. and Deutsche Bank AG are working on setting up debt financing to cover about half of the 9.77 billion-pound ($16 billion) offer to buy Cadbury, said the people, who declined to be identified because the talks aren’t public. The financing would consist of a bridge loan to be repaid with the proceeds of an investment-grade bond offering, one of the people said. Officials from the two banks declined to comment.
A limit to Kraft’s sweet tooth
Cadbury’s swift rejection of Kraft’s $16.7 billion offer has set off widespread speculation that Kraft will bump up its bid to ensure that it becomes king of candy land.
There is a limit, however, to how much Kraft can pay if it is committed to its investment-grade ratings. The company’s ratings sit two to four notches above speculative, or junk, territory, and every dollop of extra debt to pay for the acquisition would pressure the company’s ratings, making this and future financing much more expensive.
Debt default watch – 213 companies so far this year
It’s a big number, and it’s no suprise that corporate debt issurers defaulting are in the U.S. Standard & Poor’s Diane Vazza has the breakdown in a report emailed out today.
Two global corporate issuers defaulted this week, bringing the 2009 year-to-date tally to 213 issuers—nearly 4x the 55 defaults at this time in 2008. Both of this week’s defaults were based in the U.S., bringing the default tallies by region to 153 issuers in the U.S., 13 in Europe, 34 in the emerging markets, and 13 in the other developed region (Australia, Canada, Japan, and New Zealand).
FDIC bank debt program to end with a whimper
The Federal Deposit Insurance Corp’s debt guarantee program in many ways saved the banking system from collapse during last year’s worst of times. Banks were effectively shut out of the credit markets after Lehman Brothers scared bond investors silly. More than $270 billion of guaranteed debt has been sold since the FDIC adopted the program in October.
The program ends in October, as it should. It’s served its purpose and there’s no reason to keep subsidizing banks with cheap financing now that they’re making gobs of money and handing out jaw-dropping bonuses. But don’t expect the banks to start crying uncle when they have to raise funds the old fashioned way without the FDIC backing. That’s because they don’t have to.
Irrational exuberance in high yield
It’s shouldn’t be surprising that investors are feeling giddy. The world financial system didn’t collapse, big banks are making hand over fist and stock markets, well, stock markets have been on fire (today excluded). But a V-shape economic recovery in the U.S? Really?
Well that’s what the riskiest portion of the high-yield corporate debt market is pricing in. Bank of America analysts say they’ve never seen anything quite like the rebound in CCC-rated corporate debt – the lowest of the low when it comes to credit quality. The CCC index is nearly at 70 points, 10 points above its normal level seen in 1990-91 and 2001-02 and well above the sub-40 trough seen at the peak of the credit crisis.
Markets ending the first half with a whimper
Stocks are on their back foot with the DJIA off by nearly 1% points at 8,449 and the S&P down nearly 0.8% at 919 as a gloomier than expected consumer reminded the few trading this week that a snapback in the U.S. economy is hardly a slam-dunk.
But this setback shouldn’t minimize the gains seen in riskier assets this year. Reuters has the stats:
-
The Wall
