NEW YORK — Standard & Poor’s said today it assigned its triple-‘B’-plus rating to Burlington Northern Santa Fe Corp.’s $300 million senior unsecured notes due 2012, a wire service reported. The rail company’s triple-‘B’-plus corporate credit rating is affirmed. The outlook is negative. Burlington Northern is a Class 1 railroad with about $10 billion of debt (including off-balance sheet obligations.)
“Ratings reflect the company’s strong competitive position in the low-risk U.S. freight railroad industry, offset by a somewhat aggressive financial policy,” said Standard & Poor’s credit analyst Lisa Jenkins.
Fort Worth, Texas-based Burlington Northern operates the second-largest rail network in North America. The company enjoys strong positions in upper-Midwest grain traffic, Wyoming-based low-sulfur coal transportation, and intermodal (trailer and container) movements. The latter activity, which is concentrated in the important Southern California-Chicago corridor, accounts for about one-third of freight revenues. While Burlington Northern benefits from its emphasis on the premium segment of the intermodal market, its significant reliance on this market makes it more subject to cyclical swings in demand. Although increased demand in certain commodity segments helped offset the weakness in intermodal and other economically sensitive segments last year (keeping revenues flat with 2000 levels at about $9.2 billion), net income fell from $980 million in 2000 to $731 million in 2001. The operating ratio (operating expenses including depreciation as a percentage of revenues) was 80.7% in 2001 compared with 76.9% in 2000.
Burlington Northern’s credit protection measures have deteriorated over the past year due to the weakening in the economy as well as an aggressive, debt-financed share repurchase program initiated in 2000. Credit protection measures are currently somewhat weak for the rating category, with EBITDA interest coverage at about 4.7 times (x) and debt to total capital in the mid-50% area (adjusted for off-balance sheet items). Standard & Poor’s expects credit measures to gradually improve as the economy recovers. Current ratings assume that EBITDA coverage of interest will improve to the 6x-7x range and debt to total capital will fall to the 50% area. Ratings also assume that future share repurchases will not impede the expected improvement in credit protection measures.
The reinstatement of an aggressive share repurchase program or failure to achieve the expected improvement in credit measures could lead to a review for a possible downgrade. A complete list of the ratings is available to RatingsDirect subscribers at www.ratingsdirect.com, as well as on Standard & Poor’s public Web site at www.standardandpoors.com under Ratings Actions/Newly Released Ratings.