Fitch Rates Kansas City Southern's Sr. Unsecured Notes 'BBB-' & CP Ratings 'F3'
OREANDA-NEWS. Fitch Ratings has assigned a 'BBB-' rating to Kansas City Southern's (KCS) senior unsecured credit facility and senior unsecured notes. Fitch has also assigned an 'F3' rating to KCS's proposed commercial paper program. These ratings have been converted to final ratings from expected ratings upon the expiration of KSU's previously announced exchange offer and the closing of its new $800 million credit facility.
KEY RATING DRIVERS
Fitch does not believe that the change in capital structure has an impact on the credit quality of the debt, and therefore the 'BBB-' ratings at KCS are in line with the current unsecured ratings at both operating subsidiaries.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for Kansas City Southern include:
--Continued moderate economic growth in the U.S. and Mexico;
--Low-to-mid-single digit revenue decline in 2015 followed by modest growth thereafter;
--Operating margins expanding incrementally over the intermediate term;
--Adjusted debt levels remaining roughly flat through the forecast period;
--Modest annual increases in the dividend.
RATING SENSITIVITIES
Future actions that may individually or collectively cause Fitch to take a positive rating action include:
--Total adjusted debt/EBITDAR sustained below 2.5x;
--Sustained FCF margin in the low to mid-single digits;
--Execution on KSU's goal of reaching a low 60% range operating ratio.
A negative rating action is not expected at this time. However, a downgrade could be precipitated by more aggressive, debt funded share repurchases causing debt/EBITDAR to be sustained above the 2.75x - 3.0x range. Ratings pressure could also be caused by a severe drop off in demand for cargo flowing between the U.S. and Mexico. EBITDAR margins falling towards or below the 40% range, and sustained negative free cash flows could also lead to a negative ratings action.
FULL LIST OF RATING ACTIONS
Fitch has assigned the following ratings:
Kansas City Southern
--CP 'F3';
--Senior unsecured bank facility 'BBB-';
--Senior unsecured notes 'BBB-'.
Fitch currently rates Kansas City Southern as follows:
Kansas City Southern
--Issuer Default Rating (IDR) 'BBB-';
--Short term IDR 'F3'.
Kansas City Southern Railway Co.
--IDR 'BBB-';
--Short-term IDR 'F3';
--CP 'F3'
--Senior unsecured bank facility 'BBB-';
--Senior unsecured notes 'BBB-'.
Kansas City Southern de Mexico SA de CV
--Foreign currency IDR 'BBB-';
--Local currency IDR 'BBB-';
--Short-term IDR 'F3';
--CP 'F3';
--Senior unsecured notes 'BBB-'.
The Rating Outlook is Positive.
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