UPDATE: Kraft Sells $6 Billion Of Bonds As Treasurys Rally

Undeterred by the flight to safety that pushed Treasury yields to all-time lows, Kraft Foods Inc. (KFT) sold the fourth-largest corporate bond offering of 2012 on Wednesday.

The $6 billion, four-part deal was composed of three-, five-, 10-, and 30-year notes. They were priced to yield 1.714%, 2.289%, 3.608%, and 5.046%, respectively, with spreads over Treasurys of 1.35 percentage points, 1.60 points, 2.0 points, and 2.35 points, respectively. The yield on each fell 0.05 points from earlier guidance, suggesting strong demand.

The bonds carry triple-B ratings. Bonds with those ratings might risk a selloff when investors are rushing to safe havens, but market participants say Kraft is able to benefit from the decline in yields thanks to its household-name status.

Jesse Fogarty, portfolio manager at Cutwater Asset Management, said high-quality industrial bonds are receiving strong demand right now, as seen by the $38 billion order book last Thursday for the $9.8 billion deal from United Technologies Corp. (UTX).

Kraft and others who sell staple consumer goods "will be viewed as a safe haven from Europe and will be a source of yield as Treasury yields fall," Fogarty said.

The UTX deal was the largest bond offering of 2012. Spreads on parts of the six-part deal widened Wednesday, but they have narrowed dramatically from levels last week. The spread on the 10-year piece was 1.13 percentage points in late trading, down from 1.35 at issue, according to MarketAxess.

Kraft is also benefiting from being the only sizable issuer in Wednesday's new-deal market, said Timothy Cox, executive director of debt capital markets at Mizuho Securities, a senior co-manager on the sale.

"We've seen that these big trades can get done," he said. "[And it certainly helps] when you have a rifle-shot approach, or a single-trade to focus on."

The multiple-tranches also allow Kraft to access a range of different investment accounts.

The larger offering brings monthly issuance to about $80 billion, according to Dealogic, matching expectations at the beginning of the month.

The Kraft deal was open only to qualified institutional investors. It was run by Barclays, Citigroup, Goldman Sachs, J.P. Morgan, and the Royal Bank of Scotland.

Kraft, which sold the bonds through Kraft Foods Group Inc., intends to use the proceeds for general corporate purposes, and to repay some debt.

-By Patrick McGee, Dow Jones Newswires; 212-416-2382; patrick.mcgee@dowjones.com

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