Monday, November 30, 2009

The cost of finance

Looking at the Kraft attempt to take over Cadbury, the FT makes the following observaton:

An investment grade company would look at paying between 300-325 basis points above Libor for bank debt today. Before the economic crisis an equivalent borrower could have obtained those funds for less than 100 basis points.

That compares with the average cost for investment grade companies issuing bonds for acquisitions of about 120-125 basis points over Libor. "There is an overwhelming trend to use the capital markets," said Ivor Dunbar, co-head of global capital markets at Deutsche Bank. "The cost of financing is more attractive and the banks generally cannot compete with that at present."

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