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Heinz Default Swaps Increase After Berkshire, 3G Capital Deal

The cost of protecting H.J. Heinz Co.’s 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.

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