UPDATE 2-Pilgrim's Pride loss may put it in covenant default

(Recasts first paragraph; adds details, NEW YORK to dateline; updates stock price)

NEW YORK, Sept 25 (Reuters) - Top U.S. chicken producer Pilgrim's Pride Corp PPC.N said it would post a significant quarterly loss and expected to be out of compliance with a credit covenant as a result, sending its shares down more than 40 percent.

The statement from the company early on Thursday came in response to a 38 percent slide in its share price the day before as investors feared the U.S. financial crisis would limit its access to much-needed credit.

Pilgrim's Pride did not quantify the expected quarterly loss, which it attributed to high feed costs, lackluster demand for chicken breast meat, weak prices and a major negative impact of hedged grain positions.

Analysts had forecast a loss of 99 cents a share, excluding special items, for the fourth quarter ending on Sept. 27, according to Reuters Estimates.

Due to the expected loss, Pilgrim's Pride said it had recently told its lenders that it did not expect to be in compliance with its fixed-charge coverage ratio covenant under its principal credit facilities for this fiscal year.

The company also said it thought it had reached an understanding with its lenders to temporarily waive that covenant through Oct. 28 and to provide continued liquidity under those facilities for that time.

The Pittsburg, Texas-based company expects to be in compliance with all other covenants as of the end of fiscal 2008.

Pilgrim's Pride's disclosure of its default risk and a rating agency downgrade a day ago may not bode well, said JPMorgan analyst Ken Goldman.

"This could add a level of risk with which, in today's uncertain world, we are not entirely comfortable," Goldman said in a note. "So we are guarded in our outlook."

The chicken industry has suffered this year because of high prices for feed and fuel. Meanwhile, ample meat supplies have prevented companies from raising prices enough to cover higher costs.

Concerns about the U.S. economy have also led some analysts to believe that consumers may shift to less-expensive foods.

But Pilgrim's Pride has struggled more than most, in part because of about $1.5 billion in long-term debt it took on after its January 2007 purchase of smaller rival Gold Kist Inc.

Some competitors could stand to benefit from Pilgrim's troubles, JPMorgan's Goldman said.

"We would not be surprised if Tyson (TSN.N) and Sanderson Farms (SAFM.O) staged relief rallies" on Pilgrim's news, Goldman said, adding that neither company is in immediate danger of covenant violation.

Shares of Pilgrim's Pride had fallen to $6.37 when its trading was halted on the New York Stock Exchange on Wednesday. The shares had hit a five-year low of $6.06 earlier in the session.

After trading resumed on Thursday morning, the stock fell $2.66, or 41.8 percent, to $3.71. (Reporting by Aarthi Sivaraman in New York and Ajay Kamalakaran in Bangalore; Editing by Paul Bolding and Lisa Von Ahn)