Packaged foods giant Kraft Foods Inc. (KFT) and Berkshire Hathaway Inc. (BRKA, BRKB) sold a total of $17.5 billion in debt on Thursday, to help finance their respective acquisitions despite a weak corporate bond market. Kraft sold $9.5 billion in a four-part debt offering, while Berkshire sold $8 billion of debt in six tranches. However, the move cost Berkshire its only remaining 'Triple A' credit rating as ratings agency Standard & Poor's downgraded the company's rating one notch to 'AA+'.
Kraft sold $9.5 billion in a four-part debt offering after increasing yields relative to Treasury bonds as the declines in the stock and sovereign bond markets dampened investors' desire for risky assets. The company boosted the size of its offering from $4 billion earlier as demand increased. The proceeds from the offering will help Kraft finance the cash portion of its GBP 11.9 billion acquisition of U.K.-based confectioner Cadbury plc (CBY,CBRY.L).
Under the terms of the final offer, Cadbury securityholders will be entitled to receive, for each Cadbury share, 500 pence in cash and 0.1874 new Kraft Foods shares, representing in aggregate, 840 pence per Cadbury share.
Assuming the vesting and exercise of all share options and awards under the Cadbury share schemes, the final offer values the entire issued and to be issued share capital of Cadbury at about GBP 11.9 billion and the issue of 265 million new Kraft Foods shares, which will represent about 18% of the existing issued share capital and 15% of the enlarged issued share capital of Kraft Foods.
Northfield, Illinois-based Kraft sold $1 billion of senior unsecured notes due 2013, $1.75 billion of notes due 2016, $3.75 billion of notes due 2020 and $3 billion of notes due 2040.
The $1.0 billion of 3.25-year notes are now priced to yield 2.71%, or 140 basis points over comparable U.S. Treasuries, the $1.75 billion of six-year notes are priced with a 4.19% yield and a 190 basis-point spread, the $3.75 billion of 10-year notes are priced with a 5.48% yield and at 190 basis points more than similar-maturity Treasuries. The $3.0 billion of 30-year bonds are priced to yield 6.57%, or 205 basis points over Treasuries.
The fall in U.S. stocks and concern about sovereign debt sent risk premiums, or spreads,on U.S. corporate debt wider, but Kraft found strong investor interest for bonds to repay loans related to its purchase of Cadbury.
However, the U.S. corporate bond market has been largely resilient, bolstered by demand from investors who view money-market yields as too low but equities as too risky given the uncertainty around future economic growth.
Meanwhile, billionaire investor Warren Buffett's Berkshire Hathaway sold $8 billion of debt to help fund its $26 billion acquisition of railroad operator Burlington Northern Santa Fe Corp. (BNI), the largest takeover in Buffett's four decades at Berkshire.
Berkshire already owns more than 22% of the stock of Burlington Northern. The company plans to finance the acquisition of the remaining shares with a combination of 60% cash and 40% through the issuance of new Berkshire shares. The cash portion of the acquisition includes $8 billion in new debt and $8 billion in cash on hand.
The company's offering includes six tranches, from one-year floating-rate notes to five-year fixed-rate notes. However, the move cost Berkshire its only remaining Triple A credit rating.
However, Berkshire lost its last top 'AAA' rating on Thursday as ratings agency Standard & Poor's, owned by McGraw-Hill Companies Inc. (MHP), downgraded the company one notch to 'AA+'. Berkshire had earlier lost its top rating at Moody's Investors Service (MCO), which cut it in April 2009 to 'Aa2' from 'AAA', while it lost its top credit ratings at Fitch Ratings in March.
Berkshire's debt offering includes $2 billion of one-year floating-rate notes priced with a coupon rate of 0 to 3 basis points below the three-month London interbank offered rate, or LIBOR, $1.1 billion of two-year floating-rate notes priced to yield 18 basis over the 3-month LIBOR, $600 million of two-year fixed-rate notes priced at around 65 basis points over similar maturity U.S. Treasuries, $1.2 billion of three-year floating-rate notes that yielded about 45 basis points over three-month LIBOR, $1.4 billion of three-year fixed-rate notes priced at around 85 basis points over Treasuries, and $1.7 billion of five-year fixed-rate notes that yielded about 95 basis points more than Treasuries.
Standard & Poor's Ratings Services said it assigned its 'BBB-' rating to Kraft's $9.5 billion senior unsecured note issue.
S&P said, "The ratings on Kraft reflect the company's position as one of the world's largest food and beverage companies, with a broad portfolio of well-known brands and geographic diversity. However, we believe a more aggressive financial policy has led to higher debt levels and weaker credit measures. We expect Kraft to improve credit measures over the next few years through debt repayment and cash flow growth."
S&P also said that the 'BBB' corporate credit rating on Kraft remains unchanged.
Regarding Berkshire Hathaway, S&P lowered its long-term counterparty credit rating on the company to 'AA+' from 'AAA'. The company also lowered its financial strength ratings on Berkshire's core insurance operations to 'AA+' from 'AAA'.
Analyst John Iten said, "The rating actions are based on our view that Berkshire's overall capital adequacy, as well as that of its insurance operations, has weakened to levels no longer consistent with a 'AAA' rating and is not expected to return to extremely strong levels in the near term. Furthermore, we expect that the consolidated liquidity position of BRK will be reduced from extremely strong historical levels as a result of the acquisition."
Meanwhile, S&P raised its long-term ratings on Burlington Northern to 'BBB+' from 'BBB', and removed the removed the ratings from CreditWatch, where it was placed with positive implications in November.
"We base the upgrade on Berkshire Hathaway Inc.'s pending acquisition of Burlington Northern in a transaction valued at $44 billion," said Standard & Poor's credit analyst Anita Ogbara.
"The ratings do not incorporate an explicit parental guarantee from Berkshire, but we give credit for potential support from the more highly rated parent," Ogbara added. In late January, Standard & Poor's said that Berkshire Hathaway will replace Burlington Northern in the S&P 100 and S&P 500 indices on a date to be announced.
KFT closed Thursday's regular trading session at $28.39, down $0.09 or 0.32% on a volume of 58.78 million shares, while BRKA closed at $108,900, down 2.51% on a volume of 4,932 shares.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.