OREANDA-NEWS. Fitch Ratings has assigned a rating of 'BBB-' to the \\$500 million notes to be issued by Kansas City Southern's (KSU) subsidiaries primary U.S. operating entity, Kansas City Southern Railway Co (KCSR). Corporate ratings for KSU and its two primary subsidiaries, KCSR and Kansas City Southern de Mexico (KCSM), are unaffected.

The issuance will represent a senior unsecured obligation of KCSR and will be guaranteed by KSU. Like KCSR's existing debt, it will not feature a guaranty from KCSM. Proceeds from the issuance will be used to repay outstanding commercial paper and for general corporate purposes including to repurchase shares.

Fitch expects the incremental debt from the transaction to lead to increase total adjusted debt/EBITDAR by 0.2x-0.3x from mid-year 2015 levels to around 2.6x-2.7x by year end, declining modestly thereafter. KSU's aggregate debt levels at year end 2015 are expected to be in line with or marginally higher than year end 2014 levels, but leverage may be 0.1x-0.2x higher due to weaker operating margins. Fitch considers the increased leverage metrics to be consistent with our current ratings; however, Fitch now expects leverage to remain at a higher level for longer than was incorporated into our previous forecast.

KEY RATING DRIVERS
KSU's investment grade ratings are supported by the company's solid operating margins, steadily increasing revenues, and moderate leverage. The ratings also reflect Fitch's view that KSU's credit profile will improve in the coming years propelled by growth opportunities in Mexico and further operating margin expansion driven in part by the company's efforts to buy equipment off of operating leases. However, improvement in the company's credit profile may be delayed beyond our original expectations based on incrementally higher debt levels and by greater than expected weakness in energy related markets through the first half of the year.

Share Repurchase Program
In May of this year, KSU authorized a \\$500 million share repurchase program which expires in June of 2017. The company has stated that it may issue debt to fund some share repurchases, which will keep leverage at a higher level than was previously incorporated into Fitch's forecast. However, Fitch views KSU's leverage as appropriate for the rating, and Fitch does not expect the share repurchase program to negatively impact the ratings at its current size.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Kansas City Southern include;
--Modestly declining revenue in 2015 primarily based on foreign exchange headwinds and weak energy markets.
--Continued slow growth macroeconomic environment in the U.S.
--Continued growth in KSU's Mexican franchise over the intermediate term.
--EBITDA margins remaining above 40% throughout Fitch's forecast period.

RATING SENSITIVITIES
Fitch generally views KSU's credit profile as improving. A positive rating action could be triggered by a return to solid positive free cash flow, continued operating improvements, and the maintenance of leverage at or below current levels.

A downgrade could be precipitated by a severe drop off in demand for cargo flowing between the U.S. and Mexico. Alternatively, a shift in management strategy emphasizing shareholder returns or growth that comes at the expense of a healthy balance sheet could also negatively impact the ratings.

Fitch has assigned the following rating:

Kansas City Southern Railway Corp:
--Senior unsecured notes 'BBB-'.

Fitch currently rates Kansas City Southern as follows:

Kansas City Southern
--Issuer Default Rating (IDR) 'BBB-'.

Kansas City Southern Railway Co.
--IDR 'BBB-';
--Short-term IDR 'F3';
--Commercial paper 'F3'
--Senior unsecured bank facility 'BBB-';
--Senior unsecured notes 'BBB-'.

Kansas City Southern de Mexico
--Foreign currency IDR 'BBB-';
--Local currency IDR 'BBB-';
--Short-term IDR 'F3';
--CP 'F3'
--Senior unsecured notes 'BBB-'.