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The downgrades reflect the magnitude of potential litigation awards and uncertainty about the outcome of several lawsuits in the appeal process, S&P said.

The most pressing suit is a class-action case in southern Illinois, where a state judge ruled the No. 1 U.S. tobacco company must pay more than $10 billion in damages. Philip Morris USA plans to appeal the judgment.

S&P lowered the long-term corporate credit ratings on Altria and Philip Morris Capital to "BBB-plus" from "A." It also cut Altria's senior unsecured debt rating to "BBB" from "A-minus" and Philip Morris Capital's senior unsecured debt rating to "BBB-plus" from "A.".

The rating agency dropped ratings of Kraft Foods Inc.'s (NYSE:KFT - News) long-term corporate credit to "A-minus" from "single-A" and senior unsecured debt to "BBB-plus" from "A-minus." The short-term corporate credit and commercial paper ratings on Altria and its units were cut to "A-2" from "A-1."

The downgrades follow similar actions by Moody's and Fitch rating agencies. Analysts have speculated that Philip Morris' inability to post a $12 billion bond as part of the appeal process could force it to file for bankruptcy. Kraft, whose majority owner is Altria, saw its access to the short-term commercial paper lending market cut off last week.

"The ratings actions reflect the heightened level of competition in the U.S. cigarette market and future pricing uncertainty arising from increased state excise taxes and the corresponding growth of deep discount manufacturers, as well as expected continued declines in domestic volume and cash flow," S&P said.