Moody's assigns Baa3 rating to KCSR's term loan A-2
New York, January 31, 2012 -- Moody's Investors Service assigned a Baa3 rating to The Kansas City Southern Railway Company's ('KCSR') $275 million senior secured term loan A-2 due 2017. The company's other ratings (corporate family rating of Ba1) are unaffected by the action.
The ratings outlook is stable.
RATINGS RATIONALE
With a rapid restoration in freight volume and yield, Kansas City Southern's credit profile has improved materially through the business cycle recovery, supporting its Ba1 corporate family rating, as credit metrics are trending towards levels more typical of higher-rated railroad companies. These metrics have additionally benefited from a material amount of debt repayment that the company has completed over the past year, and KCSR's debt now approximates 100% of revenue generated by US operations - a level that is largely in-line with other Class I railroad companies. Over the longer term, the ratings are supported by on-going improvement in the company's railroad operations, stemming largely from robust levels of investment in both its equipment and infrastructure over the past several years. These investments will be important in the company's long-term ability to sustain the service levels required to support pricing going forward.
Although KCS's corporate family rating primarily relates to operating results at the U.S railroad (KCSR), it is also indirectly affected by the risk profile of its Mexican railroad subsidiary KCSM, to the extent that the parent may need to support that entity in the event of financial distress. KCSM currently has a corporate family rating of Ba2, with a stable ratings outlook.
KCSR intends to use proceeds from the new term loan A-2 to redeem, via tender offer, $275 million of existing senior unsecured notes due 2015.
Terms and conditions under the new term loan A-2 are similar to those of the company's existing senior term loan included in its senior secured credit facility. This transaction is part of a strategy to refinance higher-coupon senior notes that the company has undertaken over the past few years, culminating with the planned redemption of the only existing senior notes that KCSR currently has outstanding. The refinancing has helped to lower interest costs. However, as KCSR's debt structure is comprised predominantly of bank debt, this increases floating interest rate exposure and refinancing risk when compared to a capital structure that includes a substantial amount senior notes, as the average maturity of KSCR's term loans is only approximately 4.5 years.
KCSR's senior secured credit facilities, which includes the new term loan A-2, are rated Baa3, one notch above the corporate family rating, in consideration of a sufficient amount of unsecured liabilities in the company's capital structure that is junior to this facility, per Moody's Loss Given Default Methodology.
Assignments:
..Issuer: Kansas City Southern Railway Company (The)
....Senior Secured Bank Credit Facility, Assigned Baa3, LGD3, 36%
The principal methodology used in rating Kansas City Southern and The Kansas City Southern Railway was the Global Freight Railroad Industry Methodology published in March 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Kansas City Southern (KCS') operates a Class I railway in the central U.S. (The Kansas City Southern Railway Company, `KCSR') and, through its wholly-owned subsidiary Kansas City Southern de Mexico, S.A. de C.V.
(`KCSM'), owns the concession to operate Mexico's northeastern railroad.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed EU qualified by extension and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
The ratings outlook is stable.
RATINGS RATIONALE
With a rapid restoration in freight volume and yield, Kansas City Southern's credit profile has improved materially through the business cycle recovery, supporting its Ba1 corporate family rating, as credit metrics are trending towards levels more typical of higher-rated railroad companies. These metrics have additionally benefited from a material amount of debt repayment that the company has completed over the past year, and KCSR's debt now approximates 100% of revenue generated by US operations - a level that is largely in-line with other Class I railroad companies. Over the longer term, the ratings are supported by on-going improvement in the company's railroad operations, stemming largely from robust levels of investment in both its equipment and infrastructure over the past several years. These investments will be important in the company's long-term ability to sustain the service levels required to support pricing going forward.
Although KCS's corporate family rating primarily relates to operating results at the U.S railroad (KCSR), it is also indirectly affected by the risk profile of its Mexican railroad subsidiary KCSM, to the extent that the parent may need to support that entity in the event of financial distress. KCSM currently has a corporate family rating of Ba2, with a stable ratings outlook.
KCSR intends to use proceeds from the new term loan A-2 to redeem, via tender offer, $275 million of existing senior unsecured notes due 2015.
Terms and conditions under the new term loan A-2 are similar to those of the company's existing senior term loan included in its senior secured credit facility. This transaction is part of a strategy to refinance higher-coupon senior notes that the company has undertaken over the past few years, culminating with the planned redemption of the only existing senior notes that KCSR currently has outstanding. The refinancing has helped to lower interest costs. However, as KCSR's debt structure is comprised predominantly of bank debt, this increases floating interest rate exposure and refinancing risk when compared to a capital structure that includes a substantial amount senior notes, as the average maturity of KSCR's term loans is only approximately 4.5 years.
KCSR's senior secured credit facilities, which includes the new term loan A-2, are rated Baa3, one notch above the corporate family rating, in consideration of a sufficient amount of unsecured liabilities in the company's capital structure that is junior to this facility, per Moody's Loss Given Default Methodology.
Assignments:
..Issuer: Kansas City Southern Railway Company (The)
....Senior Secured Bank Credit Facility, Assigned Baa3, LGD3, 36%
The principal methodology used in rating Kansas City Southern and The Kansas City Southern Railway was the Global Freight Railroad Industry Methodology published in March 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Kansas City Southern (KCS') operates a Class I railway in the central U.S. (The Kansas City Southern Railway Company, `KCSR') and, through its wholly-owned subsidiary Kansas City Southern de Mexico, S.A. de C.V.
(`KCSM'), owns the concession to operate Mexico's northeastern railroad.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed EU qualified by extension and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.