S&P: beef processors on watch due to Mad Cow

Standard & Poor's said it took rating actions on issuers participating in the U.S. beef and affiliated sectors following the Dec. 23 announcement by Agriculture Secretary Ann Veneman stating that a cow slaughtered in the state of Washington earlier this month had bovine spongiform encephalopathy, otherwise known as mad cow disease.

This is the first case in the United States and has prompted considerable concern in the country's beef industry. Several nations, including Russia, Japan, South Korea, and Mexico, have already announced that they are banning U.S. beef imports.

The ratings on all U.S. beef protein processors were placed on CreditWatch with negative implications (with the exception of ratings on Smithfield Foods Inc., which were already on CreditWatch as of July). Total rated debt for the beef processors is about $9.2 billion.

At the same time, the outlook for diversified agribusiness company, Cargill Inc., which has a significant presence in the beef processing industry, is revised to negative from stable. The ratings for Cargill were affirmed.

Although S&P said it expects the impact from the positive BSE finding to be less significant for restaurants than for beef producers due to menu diversity and food substitution, S&P has revised the outlook to negative of several restaurant companies with significant beef exposure, including Carrols Corp., Jack in the Box Inc., Morton's Restaurant Group Inc., and Wendy's International Inc.

Other restaurants with significant beef exposure already had negative outlooks, including McDonald's Corp., American Restaurant Group Inc., CKE Restaurants Inc., and The Krystal Co. The ratings for all aforementioned restaurant companies were affirmed.

Ratings placed on CreditWatch negative are Tyson Foods Inc. (BBB/watch negative/A-3); Swift & Co. (BB-/watch negative/--); National Beef Packing Co. LLC (BB-/watch negative/--), and ContiGroup Cos. Inc. (BB-/watch negative/--).

Issuers whose outlooks were revised to negative are Cargill Inc. (A+/negative/A-1); Carrols Corp. (B+/negative/--); Jack in the Box Inc. (BB/negative/--); Morton's Restaurant Group Inc. (B/negative/--), and Wendy's International Inc. (BBB+/negative/A-2).

Separately, Brinker International (BBB/stable/--) was revised to stable.

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