Kraft Foods Inc and Cadbury Plc saw their credit ratings slashed by ratings agency Fitch to the lowest investment grade after Kraft won Cadbury's backing for its $19.6 billion takeover bid.
Fitch said on Wednesday it had downgraded its issuer default rating on both companies one notch to BBB-.
Late Tuesday, rival ratings agency Moody's said Kraft's credit ratings would likely remain investment grade following the deal, but were under review for a possible downgrade.
Separately Standard & Poors said it would keep an A- long-term corporate credit on Kraft, creditwatch negative, and a BBB rating on Cadbury, creditwatch with “developing implications.”
In a statement Fitch said its downgrades “reflect the anticipated increase in financial leverage of the combined Kraft/Cadbury.”
The deal will result in Kraft paying 500 pence in cash plus 0.1874 of a new Kraft share for each Cadbury share. The cash portion of around $11.2 billion will be financed with debt.
Fitch said it expected the combined company's leverage to reduce to around 3 or 3.5 times EBITDA from 4 times within two years, through growth of earnings and repayment of debt through free cash flow.
“This level is considered commensurate with the 'BBB-' rating,” it said. (Reuters)