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Irene Rosenfeld, CEO of Kraft Foods Inc - Source: Reuters
Kraft Foods Inc's bankers are confident that it can raise a jumbo bridge loan to finance its 10.2 billion pound ($NZ22.7 billion) bid for Britain's Cadbury and tackle a maturing $US4.5 billion loan, banking sources said on Thursday.
Kraft needs to show Britain's Takeover Panel that it has committed financing in place before November 9, when it has to bid for a second time or walk away for six months, after Cadbury rejected its initial cash and share bid in September.
Citigroup, Deutsche Bank and HSBC will co-ordinate the bridge loan, a senior banker close to the deal said, adding that the lead group may be expanded further and Barclays is likely to play a role.
"We are quietly working through. We have not made any decision yet, we know the deadline and are working with that," a second banker close to Kraft's financing said.
Kraft's bankers are confident that the company can secure acquisition financing at very short notice, maintain its investment-grade rating of Baa2/BBB+ and refinance a $US4.5 billion loan which matures in April 2010.
"This (the acquisition financing) is a very easy financing to put together - it could be done in half an hour. This would be an investment grade financing - its a lot less leveraged than ABInBev and easier," the second banker said.
Other sources said, however, that Kraft's attempts to line up the multibillion dollar bridge loan could be complicated by the imminent maturity of the $US4.5 billion, five-year revolving credit.
"Normally you would not have a bridge loan going over a refinancing. Uncertainty around the refinancing could be a challenge for the bridge financing," a third banker not related to the deal said.
The second Kraft banker said that the two financings would be addressed separately, while the first banker said that the two financings were likely to be rolled together into a bigger loan.
"My guess is that if Kraft makes the bid and goes ahead, the
$4.5 billion loan will be wrapped into the new acquisition
financing," the first banker said.
Acquisition bridge loans are typically agreed with sufficient
flexibility or headroom upfront to allow companies to increase bids
if necessary, several bankers said.
Speculation that Kraft could seek to finance an increased bid by raising funds in the equity market were dismissed by the second Kraft banker.
"Equity is completely wrong," the second banker said, implying that the bridge loan would cover the cost of a bid increase.
Kraft's financing is likely to be raised primarily in the US loan market to avoid charges of arbitraging the cheaper European loan market, several bankers said.
Bridge loan financing is cheaper in Europe at around 250 basis points (bps) for a three-year maturity than the United States, where pricing is around 300 bps for a one-year loan and also features more onerous duration fees to encourage rapid bond market refinancing, they added.
Kraft could also seek to delay finalising its bid financing until the last minute to take full advantage of the weak pound, which is making the acquisition cheaper by shrinking the cash component, which also takes pressure off Kraft's ratings, a fourth banker said.
