Bloomberg News

Heinz Default Swaps Increase After Berkshire, 3G Capital Deal

February 14, 2013

The cost of protecting H.J. Heinz Co.’s (HNZ:US) debt from losses soared after Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital agreed to buy the ketchup maker for about $23 billion.

Five-year credit-default swaps on the Pittsburgh, Pennsylvania-based company’s debt climbed 106.5 basis points to 148 basis points as of 9:44 a.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The buyers will pay $72.50 a share, according to a statement today. Berkshire will spend about $12 billion to $13 billion on the deal for the maker of Ore-Ida potato snacks, Buffett told CNBC. The deal will also be financed with cash from 3G affiliates, plus the rollover of existing borrowings, and is valued at about $28 billion including debt, according to the statement.

Credit-default swaps typically rise as investor confidence deteriorates and fall as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Madhura Karnik in New York at mkarnik@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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