S&P downgrades Kraft

Standard & Poor's said it lowered its corporate credit rating on Kraft Foods Inc. to A- from A and its short-term corporate credit and commercial paper ratings to A-2 from A-1.

The ratings were removed from CreditWatch, where they were placed on Oct. 31 with negative implications following third-quarter results and weaker-than-expected credit measures, and the outlook is now stable.

The downgrade follows S&P's review of Kraft after its third-quarter earnings announcement. The agency said it found that credit measures have weakened below its prior expectations because of increased commodity-cost pressures on earnings and higher debt levels to fund more-aggressive share repurchase activity. Consequently, lease- and pension-adjusted total debt to EBITDA increased to 2.4 times for the 12 months ended Sept. 30 from 2 times at the end of fiscal 2006, and pro forma for the pending and largely debt-financed Danone global biscuit acquisition, S&P estimates leverage will be around 3.2 times.

The agency said the ratings on Kraft reflect the company's position as one of the world's largest food and beverage companies, its modest financial profile and its leading position in packaged food products, partly offset by a more-aggressive financial policy that will lead to somewhat higher debt levels.

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