S&P and Moody’s downgrade Hormel Foods following $1.05B Brakebush deal

Investing.com -- S&P Global Ratings and Moody’s Ratings downgraded credit ratings for Hormel Foods Corporation (NYSE: HRL) following the packaged food company’s announcement of a $1.055 billion deal to acquire value-added chicken processor Brakebush Brothers Inc.

The debt-financed acquisition signals a willingness by management to temporarily abandon conservative balance sheet targets at a time when underlying earnings face pressure from inflation, soft retail volume, and elevated leverage stemming from prior transactions.

S&P lowered its issuer credit and senior unsecured note ratings on Hormel to ‘BBB+’ from ‘A-’, citing an expected delay in the company's deleveraging trajectory. S&P highlighted that Hormel’s pro forma adjusted leverage is projected to rise to 2.5x at closing, up from 1.8x pre-transaction, keeping leverage above management’s stated target range of 1.5x to 2.0x for more than two years.

Concurrently, Moody’s reduced its rating on Hormel’s senior unsecured debt to A3 from A2, pointing to execution risks alongside a pro forma debt-to-EBITDA leverage metric of 2.8x. Moody’s noted that high dividend obligations and subdued operating earnings will continue to constrain near-term free cash flow generation.

Despite the immediate balance sheet strain, both rating agencies recognized the underlying industrial logic of bringing Brakebush into the fold. As a processor serving primarily foodservice clients through a contracted cost-plus fixed price model, Brakebush provides Hormel with protected, non-commodity chicken exposure alongside meaningful scale in its highest-performing operating segment.

S&P noted that the transaction adds substantial absolute EBITDA and top-line scale, which should help Hormel return consolidated EBITDA above $1.4 billion as management targets at least $20 million in annualized cost synergies by fiscal 2028. Moody's added that Hormel's strong liquidity, backed by $840 million in cash as of July 2026 and an un-drawn $750 million revolving credit facility, provides sufficient buffer to absorb the transaction and handle upcoming debt maturities.

Both agencies assigned a stable outlook to Hormel’s new rating levels, reflecting expectations that cash flow will be prioritized toward debt reduction rather than further acquisitions or aggressive capital returns. S&P and Moody's warned, however, that persistent margin compression, integration hurdles, or a failure to bring leverage back toward 2.0x could trigger additional credit downgrades.

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