Hormel Foods Credit Rating Cut by S&P, Moody's on $1.05B Brakebush Deal

S&P Global Ratings and Moody's Ratings have downgraded the credit ratings of Hormel Foods Corporation (NYSE:HRL) following its announcement of a $1.055 billion deal to acquire chicken processor Brakebush Brothers Inc. Both agencies cited the debt-financed nature of the transaction, which will significantly increase Hormel's leverage and delay its plans to strengthen its balance sheet.

Details of the Downgrades

S&P lowered its issuer credit rating on Hormel to ‘BBB+’ from ‘A-’, while Moody’s reduced its rating on the company's senior unsecured debt to ‘A3’ from ‘A2’. The agencies pointed to a sharp rise in the company's debt metrics as the primary driver for the ratings action.

According to the agencies' analyses, Hormel's pro forma leverage will rise substantially following the deal's close:

• S&P projects Hormel's adjusted leverage will increase to 2.5x, up from 1.8x before the transaction.
• Moody’s calculated a pro forma debt-to-EBITDA leverage metric of 2.8x.

Both figures place Hormel's leverage above its own stated target range of 1.5x to 2.0x for what S&P expects will be more than two years.

Strategic Rationale vs. Balance Sheet Strain

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Despite the immediate strain on the balance sheet, both S&P and Moody's acknowledged the underlying strategic logic of the acquisition. Brakebush, a value-added chicken processor serving foodservice clients, is seen as a strong fit that adds scale to Hormel's highest-performing operating segment and provides non-commodity chicken exposure.

Hormel's management is targeting at least $20 million in annualized cost synergies by fiscal 2028. However, the rating agencies cautioned that the increased debt comes at a time when Hormel's earnings are already facing pressure from inflation, soft retail demand, and elevated leverage from previous acquisitions. Moody's noted that high dividend obligations will also constrain near-term free cash flow generation.

Stable Outlook and Liquidity

Both agencies assigned a stable outlook to Hormel's new, lower ratings. This reflects an expectation that the company will prioritize using cash flow to pay down debt rather than pursuing further large acquisitions or aggressive shareholder returns. S&P and Moody's noted that persistent margin compression or a failure to reduce leverage back toward 2.0x could trigger further downgrades.

Hormel's financial position is supported by strong liquidity, which provides a buffer to absorb the transaction. According to Moody's, this includes $840 million in cash as of July 2026 and an undrawn $750 million revolving credit facility.