| HOME | NEWS ALERTS | SMK RECOMMENDATIONS |

Those institutions worry that the cigarette division will come under severe pressure, and may even be forced to file for bankruptcy-court protection.

While a bankruptcy filing is considered a long shot, Moody's Investors Service (News - Websites) cut the debt rating on Altria by two notches to three levels above "junk" and by one on Kraft Foods Inc., the nation's largest food firm, which is publicly traded but controlled by Altria. The move is significant because Altria prizes its high credit rating and has maintained it for years even when faced with massive punitive-damage awards.

"We can't purchase a $12 billion bond, because there isn't one that large for sale, and we can't post $12 billion in cash," says William S. Ohlemeyer, associate general counsel at Philip Morris. "We have a lot of opportunity to avoid the worst-case scenario. At the end of the day, it's not in anyone's interest to see Philip Morris USA file Chapter 11 in order to appeal this case. I'm hopeful that the state lawmakers will pass a bonding-cap statute. I don't think anybody could argue with the fairness of that."

Altria, a component of the 30-stock Dow Jones Industrial Average, was until recently known as Philip Morris Cos., before a name change intended to reposition its image.

The Madison County, Ill., verdict is the latest in a series of significant legal blows to a tobacco industry that had become accustomed to the failure of class-action lawsuits and had convinced investors that the dangers of litigation were under control. The Illinois decision coupled with the profit squeeze facing major cigarette makers thanks to the rise of bargain-basement smokes is causing a "perfect storm" for cigarette firms.

The ratings cut will raise the cost of financing for Altria by forcing the company to pay higher yields on future bonds and debt it sells to compensate investors and lenders for the risks of holding debt with a lower rating. More broadly, however, the shakeout from the bond requirement could have a huge impact across the country, as Philip Morris, the maker of Marlboro could suspend the huge payments to state governments mandated by a 1998 tobacco settlement.