Updated from 4:06 p.m. EDT

An Illinois judge lowered the size of a bond that

Altria

(MO) - Get Report

must post to appeal a $10 billion judgment it faces, sparing its Philip Morris USA unit a possible bankruptcy filing.

Madison County Circuit Court Judge Nicholas Byron ordered the company to put a $6 billion term note -- roughly half the size of the bond initially sought -- into escrow. The money is needed to secure plaintiffs in a class-action suit over "light" cigarettes Philip Morris lost last month. Altria will also have to pay an additional $800 million in four installments to secure the appeal.

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"It's a viable solution to a really difficult situation," said William Ohlmeyer, Philip Morris's general counsel, in a televised interview. "It allows us to proceed with the appeal of this case without being distracted by some of the other issues and uncertainty."

Philip Morris can't appeal the new bond requirement, and agreed to not challenge Illinois' current bonding law, according to wire reports. Philip Morris had warned in the past that a $12 billion bond could force it into bankruptcy.

"This certainly at the minimum buys time in terms of no immediate downgrade of credit, and obviously they won't be having to declare bankruptcy," said Jonathan Leinster, an analyst with UBS Warburg. "I think getting to a position of appeal is a level of comfort; they have been there before and have prevailed."

Altria had also said the bonding requirement threatened its ability to meet a $2.6 billion payment due April 15 as part of its 1998 tobacco settlement with the states. The company said Monday that it will make its payment on schedule.

"I see no reason to be concerned about municipalities ability to pay any bonds issued on the basis of tobacco revenues," said Phillip Smith, managing director at Banc of America Securities and a member of the Municipal Securities Rulemaking Board. "The ratings of existing bonds should not be affected."

The shares ended up 89 cents, or 2.9%, to $31.48.