(The following story by John D. Boyd appeared on The Journal of Commerce website on March 24, 2009.)
WASHINGTON, D.C. — Group cites concern over railroad’s tight liquidity, weakened earnings as traffic drops Standard & Poor’s Ratings Services, a major ratings agency for corporate debt, lowered its long-term corporate credit rating for Kansas City Southern to “B” from “B+” and put the railroad firm on a watch list “with negative implications.”
S&P took the action after KCS said it will bolster liquidity through a new $200 million debt issue for its Kansas City Southern de Mexico unit, and might issue up to $75 million in stock for the parent company.
The rail firm also said traffic on its U.S. rail operations – carload and intermodal combined — has fallen about 6 percent in the year to date through March 14, while KCSM volume has dropped 26 percent.
S&P credit analyst Anita Ogbara said the ratings cut for KCS “reflects our concerns regarding the company’s liquidity position, and deteriorating earnings and cash flow.”
KCS is paring its capital spending from last year, but Ogbara said “its liquidity position remains constrained due to the timing of its expansion projects relative to cash flow.”
For the rest of this year, the ratings group said, “we expect further deterioration in revenues and operating performance, due to declining volumes and high operating leverage, particularly in Mexico.” And while KCSM last year contributed 44 percent of consolidated revenues of the company, S&P said that unit has “been hampered by weakness in the automotive- and manufacturing-related sectors.”