Fitch Affirms Kraft Foods' Ratings at 'A-/F2'; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the ratings of Kraft Foods Inc. (Kraft), as indicated below:

Kraft Foods Inc. (Kraft)

--Issuer Default Rating (IDR) at 'A-';

--Senior unsecured debt at 'A-';

--Credit facility at 'A-';

--Commercial paper at 'F2'.

The Outlook remains Stable. Kraft's debt at March 31, 2007 was $11 billion. Kraft has $1.4 billion of upcoming debt maturities through July 2007 that are expected to be refinanced in the near term.

The ratings recognize Kraft's prominent size and scale within the global packaged foods industry, its leading market share positions in key categories and its strong brand equities. The company has seven brands with revenue of $1 billion and over 50 brands with revenues of $100 million. The ratings reflect Kraft's current position as a stand-alone packaged food and beverage company with no linkage to the ratings of its former parent company, Altria Group, Inc. (Altria). Altria spun-off its 89% interest in Kraft on March 30, 2007.

Kraft's current credit metrics are slightly stronger than the current rating level would indicate. Kraft's leverage ratio of total debt-to-EBITDA was approximately 1.8 times (x) for the latest 12 months ended March 31, 2007 and EBITDA-to-interest expense was approximately 10.6x, excluding one-time charges. However, leverage will rise slightly with the partially debt financed $5 billion share repurchase program that Kraft announced in February 2007. The program began immediately after Kraft was spun off and is expected to be completed over two years. Fitch views the share repurchase program as taking a more aggressive stance with its capital structure. Nonetheless, leverage (as measured by total debt-to EBITDA) is anticipated to remain in the low 2x range which is adequate for the current rating category. The ratings do not factor in any major acquisitions or divestitures throughout the heightened share repurchase period.

Over the past several years, Kraft has encountered high commodity costs, a competitive European retail environment and changing consumer preferences, which pressured its operating margins. Underinvestment in its brands also hampered its performance and led to weak volume growth. Kraft's most recent quarter ended March 31, 2007, displayed some improvement. Organic net revenues (excluding acquisitions/divestitures and currency) were up 3.6%, driven by 1.2% from volume, 2.2% from mix and 0.2% from pricing. However, operating income (excluding items) fell 3%. North American segments incurred lower operating income, primarily due to incremental investment in product quality, marketing support and higher costs for certain commodities.

Despite the difficulties noted above, credit metrics have shown stability due to the company's consistent focus on debt reduction. The company is in the midst of an aggressive $3 billion restructuring program from 2004-2008 to streamline its cost structure and revitalize its growth trajectory. Kraft expects to incur restructuring costs of $625 million in 2007 and generate $700 million of cumulative cost savings by the end of 2007, on its way to $1 billion of annualized savings at the conclusion of the program. Kraft is directing the cost savings it generates back into investments in its brands. The ratings factor in a moderate degree of execution risk of this program. Fitch expects sustainable positive impact from the company's ongoing restructuring efforts to take time to develop. However, Kraft is anticipated to attain stronger free cash flow, volume growth and revenue growth over the intermediate term.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.