Berkshire, Kraft Sell Multibillion-Dollar Bonds Amid Storm

Berkshire Hathaway (BRKA, BRKB) joined Kraft Foods Inc. (KFT) in offering a multibillion-dollar bond Thursday, and both found plenty of buyers even as disappointing economic news sent investors fleeing from stocks, commodities and other assets.

Kraft raised $9.5 billion to finance its purchase of British confectioner Cadbury PLC (CBRY.LN); and Berkshire slated the proceeds from its $8 billion deal for its acquisition of Burlington Northern Santa Fe (BNI). The two had to offer attractive terms to buyers, however, amid steep declines in many markets, including a 2.6% drop in the Dow Jones Industrial Average. Kraft, for example, bumped up the risk premium on three of the bonds by 0.05 percentage point.

Berkshire also paid a price, in a different way. Standard & Poor's relieved the company of its coveted triple-A credit rating Thursday because of the railroad deal. Its new three-year fixed-rate note was seen offering 0.25 percentage point more than its existing debt.

"For many investors, knowing that Warren Buffett is behind the offering is about all the research he or she may need to do when considering this deal," said Margie Patel, a senior portfolio manager at Evergreen Investments in Boston.

The size of the corporate bond deals--both among the top 15 largest on record--illustrates the apparently insatiable demand for debt from companies as highly rated as Berkshire and those such as Kraft that are near the bottom of investment-grade status.

"It shows how open the credit markets are right now especially for names that are in high recognition and that have shown resiliency in this marketplace," said Thomas Chow, senior portfolio manager at Delaware Investments in Philadelphia.

Large and small buyers of corporate bonds had stockpiled cash they must invest. High-grade bond funds have seen heavy inflows from investors, while money-market funds have been losing cash for months.

"The demand that we've seen for corporate supply has been very strong, despite cross-currents such as sovereign risk in Europe and ongoing regulatory uncertainty," said Jim Merli, head of the fixed-income syndicate for the Americas at Barclays Capital.

Still, the robust corporate bond markets can be rattled, as was seen briefly in January, said Lon Erickson, portfolio manager at Thornburg Investment Management in Santa Fe, which declined to buy the new Kraft bonds.

"People will still be putting money to work in corporate bonds, and maybe even stretch a little," Erickson said. But, he added, "it can turn on a dime."

Indeed, market tone, outside of the new deals, was weaker amid concerns about heavily indebted European nations and the pace of the U.S. economic recovery. Initial claims for jobless benefits in the U.S. unexpectedly rose last week, which may not bode well for Friday's nonfarm payrolls report.

Berkshire's offering, which tied the 11th-largest U.S.-marketed investment-grade deal excluding government-guaranteed debt since Dealogic records began in 1995, includes six tranches from one-year floating-rate notes to five-year fixed-rate notes.

Kraft's offering, which matches the sixth-largest U.S.-marketed investment-grade deal excluding government-guaranteed debt, was widely anticipated in the market. Kraft offered notes maturing in 3.25, 6, 10 and 30 years. The deal drew over $25 billion in orders, even as the markets slumped, according to participants.

"The buyer base worked with us because Kraft is a premier name and it's a rare opportunity to buy paper in a benchmark size," said David Trahan, managing director at Citigroup (C), one of the five bookrunners.

-By Romy Varghese, Dow Jones Newswires; 215-656-8263; romy.varghese@dowjones.com

(Kellie Geressy-Nilsen also contributed to this article.)

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