Ratings agency, Standard & Poor's has cut its credit rating on Jefferson Smurfit to junk status as Madison Dearborn's offer for the company is declared completely unconditional.

The agency has reduced its long-term rating on Smurfit from BBB+ to BB+, bringing the company into the sub-investment grade.

The decision, which was not unexpected, reflects the change that the Madison Dearborn acquisition will bring to the paper and packaging group's financial position. The private equity firm is acquiring Smurfit on a highly-leveraged basis, and has indicated its intention to operate the company in a similar fashion.

S&P has left the rating on credit watch, thus leaving the way open to future downgrades. Yesterday's cut follows almost four months of credit watch status for Smurfit.

"There is definitely a great chance that they will (be cut again)," said S&P analyst, Mr Andreas Kindahl. He said that Madison Dearborn had indicated a net debt to EBITDA ratio of about 4.5, which implied a rating of BB- or BB. He said that S&P was due to meet Smurfit management within a few weeks.

Meanwhile, Madison Dearborn's offer for Smurfit has been declared completely unconditional. The news comes as MDCP Acquisitions, the company formed for the purpose of the takeover, prepares to launch a €900 million bond as part of its financing package.

The issue, which is the largest high-yield borrowing by a European firm, is to be structured in three tranches denominated in dollars, euros and sterling. It will have a 10-year maturity and will be subject to a non-call provision for five years.

A roadshow to promote the bond is to begin in the US next week and then continue in Europe.

The bond represents one aspect of Madison Dearborn's three-pronged approach to financing the €3.7 billion takeover. The finance also includes a syndicated senior debt loan and an equity contribution.

Madison Dearborn said yesterday that it had received acceptances for its offer in respect of 91.39 per cent of Smurfit shares. The offer is to remain open for acceptances until October 1st.

The Chicago-based private equity firm has undertaken to despatch cash due to accepting Smurfit shareholders under the deal on or before September 17th.

Remaining shareholders will receive payments within 14 days of acceptances being received. - (Additional reporting by Reuters)