Kraft Foods Inc (KFT)

CHICAGO--(BUSINESS WIRE)--
Fitch Ratings has assigned a 'BBB-' rating to Kraft Foods Inc.'s (Kraft)
(NYSE: KFT) proposed $4 billion senior unsecured notes offering which
expected to be in four tranches ranging from 3.25 years to 30 years.
This offering may be upsized considerably.

Fitch rates Kraft as follows:

--Issuer Default Rating (IDR) 'BBB-';

--Senior unsecured debt 'BBB-';

--Credit facility 'BBB-';

--Short-term IDR 'F3';

--Commercial Paper 'F3'.

Fitch rates Cadbury plc and its subsidiaries as follows:

Cadbury plc

--IDR 'BBB-';

--Short-term IDR 'F3'.

Cadbury Schweppes Finance plc

--Senior unsecured debt 'BBB-';

--Commercial Paper 'F3'.

Cadbury Schweppes US Finance plc

--Senior unsecured debt 'BBB-'.

The Rating Outlooks for Kraft and Cadbury are Stable.

Net proceeds from this debt issuance are expected to be used to
partially finance the $19 billion acquisition of Cadbury plc. The cash
portion of the acquisition is approximately $11 billion, which is
expected to be financed with debt. The proposed notes contain a Change
of Control clause. Upon the occurrence of both a Change of Control and
rating downgrades below investment grade, unless Kraft has exercised its
right to redeem the notes, the company will be required to offer a cash
payment at a price equal to 101% of the aggregate principal amount of
the notes plus accrued and unpaid interest. The notes will be issued
under Kraft's indenture dated Oct. 17, 2001, which contains limitations
on liens and sale-leasebacks but does not contain financial covenants.

On Feb. 2, 2010, Kraft announced that it had acquired control of Cadbury
with holders of 71.73 percent of Cadbury's outstanding shares accepting
its Final Offer. The Final Offer, which is now unconditional, remains
open. Fitch anticipates that the Cadbury shares will be delisted once 75
percent of Cadbury's shareholders have accepted the offer, and Kraft
will consolidate Cadbury's financials when the 80 percent threshold is
reached. If Kraft acquires 90 percent of Cadbury's shares, it can
acquire the remaining shares though a 'compulsory acquisition' procedure.

The ratings consider the strategic benefits of combining Kraft's and
Cadbury's confectionery businesses, offset by the material increase in
leverage. Cadbury's Board of Directors' support of Kraft's Final Offer
increased the likelihood of this leveraging transaction occurring and
led to Fitch's Jan. 20, 2010 downgrades of Kraft's and Cadbury's ratings
to the current levels. The combination with Cadbury strengthens Kraft's
platform in confectionery, and provides it with greater geographic
reach, particularly in faster growing developing markets. However, there
is significant integration risk in the near-term as Kraft assimilates
operations and cultures. 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.

Fitch anticipates that Kraft will assume Cadbury's debt. Kraft's total
incremental debt from the acquisition is expected to be approximately
$12 billion, taking into consideration a portion of Kraft's pizza
divestiture proceeds to be used for debt reduction, plus the assumed
debt from Cadbury. Kraft's sale of its pizza business is expected to
close in 2010. Kraft obtained a 7.1 billion GBP ($11.3 billion) bridge
credit agreement for the Cadbury acquisition. Kraft's total debt at
Sept. 30, 2009 was $20.7 billion and cash was $3 billion. Fitch
anticipates that total debt and cash will be lower at Dec. 31, 2009 due
to debt reduction during the fourth quarter of 2009.

Kraft's pro forma total debt will initially be more than $31 billion,
resulting in pro forma leverage of approximately 4 times (x) total debt
to operating EBITDA. The combined entity is expected to reduce leverage
to 3x-3.5x within approximately two years through growth of EBITDA and
use of free cash flow. Refraining from share repurchases is critical in
the near-term, as free cash flow is anticipated to be used for debt
reduction. However, near-term debt reduction will initially be slow due
to cash implementation costs of $1.3 billion to achieve Kraft's expected
pre-tax cost savings of $675 million by the end of the third year after
completion of the acquisition.

Kraft maintains $4.5 billion of effective undrawn capacity on its
three-year revolving credit facility expiring November 2012 that
supports its commercial paper (CP) program. On Sept. 30, 2009, Kraft had
$1.4 billion of short-term debt, including CP. Upcoming debt maturities
include approximately $500 million in 2010 and $2 billion in 2011. Free
cash flow (cash flow from operations less capital expenditures and
dividends) year-to-date through Sept. 30, 2009 was $1.2 billion,
including $225 million of contributions to U.S. pension plans and $124
million to non-U.S. plans.

See the related Kraft press release 'Fitch Downgrades Kraft's Ratings to
'BBB-/F3' on Cadbury Revised Offer', dated Jan. 20, 2010, available at 'www.fitchratings.com'.

The following applicable criteria reports are available at 'www.fitchratings.com':

--'Corporate Rating Methodology', dated Nov. 24, 2009;

--'Rating Food Companies', dated Nov. 5, 2008.

Additional information is available at 'www.fitchratings.com'.

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Source: Fitch Ratings