"The downgrade reflects weak credit metrics for the rating and our expectation that credit measures will not rebound to more appropriate levels in the near term," the rating agency explained in a news release.

S&P said it removed Smitfield's debt rating from the CreditWatch with negative implications it was placed on Dec. 3, 2007, for weak operating performance in its hog production segment. The outlook is negative.

Smithfield Foods had about $3.8 billion of debt (including capitalized operating leases and pension and postretirement obligations) as of Oct. 26, 2008.

When S&P downgraded the company to 'BB-' on June 27, 2008, it said it expected to affirm the ratings when the sale of its beef segment to JBS S.A. was completed, which occurred in October. Even taking into account the $580 million it received for the sale and applied to debt reduction, due to the decline in operating performance in the company's hog production segment, EBITDA margins and credit measures are weaker than the agency previously expected.

"In our view, Smithfield Foods continues to face a very challenging operating environment in its hog production operations through the remainder of fiscal 2009 due to soft hog prices. Although feed costs have come down considerably over the last several months, those lower costs will take time to be realized in the company's operating results. We estimate that the company's cost for raising hogs is still well above selling prices. Furthermore, if pork producers in the industry do not continue to reduce livestock numbers (currently, the incentive--high corn prices--is no longer there), then selling prices will not strengthen in calendar 2009 (the company's fiscal 2010). This could curtail the turnaround Smithfield Foods anticipates for fiscal 2010," the agency stated.

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