(Dow Jones Newswires circulated the following on June 23, 2010.)
NEW YORK — Standard & Poor’s Ratings Services gave a two-notch upgrade to junk-level Kansas City Southern (KSU), citing the regional railroad’s recent debt reduction and improved capital structure and liquidity position.
The company used proceeds from a stock offering earlier this year as well as cash on hand to repay about $240 million of high-coupon debt, with an additional $60 million expected to be repaid upon completion of the program soon.
S&P also said given the rebound in volumes and stable pricing environment, Kansas City Southern’s cash flow should continue over the next few quarters.
Ratings agencies have touted the debt reduction and improved operating outlook for the year, as Moody’s Investors Service on Friday lifted its outlook on the company to positive, meaning an upgrade is possible. It has the railroad one notch below S&P’s new rating of BB-, which is three notches into junk territory.
On Monday, it said Kansas City Southern’s revised grade reflects its aggressive financial profile, substantial capital-spending requirements and meaningful exposure to cyclical end markets such as automotive and manufacturing, particularly in Mexico. The favorable characteristics of the rail industry and the company’s strategically located rail network partly offset those risks. And while the company is significantly smaller and less diversified than its peers, it operates a critical rail network in the south-central U.S. and Mexico.
In April, Kansas City Southern reported it swung to a first-quarter profit, beating analysts’ estimates, as rail volume picked up. The company is one of the main railroad operators in Mexico, where business has done better than in the U.S. lately.
Shares were down 0.8% to $40.77 in recent trading. The stock is up 23% this year.