Kraft Foods and Warren Buffett's Berkshire Hathaway sold $17.5bn in bonds on Thursday to finance acquisitions in spite of a rocky day for global financial markets.
Berkshire raised $8bn in staggered maturities of up to five years to help fund its purchase of railroad Burlington Northern even as the move cost Berkshire its only remaining triple A credit rating.
Standard & Poor's on Thursday cut its rating to double A plus, saying that "the railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity . . ."
The fall in US stocks and concern about sovereign debt sent risk premiums, or spreads,on US corporate debt wider but Kraft found strong investor interest for bonds to repay loans related to its purchase of Cadbury, the UK confectionery company.
Kraft had unveiled a four-part bond sale of at least $4bn but was able to expand it to $9.5bn.
However, the negative turn in the markets damped some enthusiasm for the Kraft deal, said Jason Brady, managing director at Thornburg Investment Management.
He said: "There is no doubt that significant or persistent weakness in risk assets as evidenced by stocks is not good for corporate bonds."
Generally, spreads on investment-grade corporate bonds widened by five to 10 basis points. Kraft priced its bonds at spreads ranging from 2.5bp to 5bp wider than the launch offer.
The US 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."Investment-grade corporates - large market-cap industrials with well understood business plans - are where investors want to be when the market gets volatile," said Mark Bamford, head of global fixed income syndicate at Barclays Capital. The demand has pushed borrowing costs below long-term averages. Investment-grade corporations, excluding financial companies, sold a record $514bn in the US last year, according to Dealogic, and rushed to sell bonds in early 2010. But an air of caution has entered the market.Therese Esperdy, head of debt capital markets at JPMorgan. said: "Most of the corporate deals are meeting with strong demand, but it is not the same rabid frenzy we were seeing during the first weeks of the year."