(The following story by John D. Boyd appeared on the Journal of Commerce website on April 20, 2010.)
WASHINGTON, D.C. — Standard & Poor’s Ratings Services said it has revised its outlook on eastern-U.S. rail giant CSX Transportation to “positive” from “stable,” given its large income gain in the first quarter plus improving freight volume, pricing and cost reductions.
The debt evaluation service affirmed its existing ratings on CSX, including its “BBB” grade for the carrier’s long-term corporate debt, which it linked to “management’s current commitment to maintaining investment-grade ratings.”
But it said “the outlook revision reflects the improving volume environment, meaningful cost reduction and improving credit metrics.”
“In the near term, we expect volume growth to continue, as a result of the improving economic environment,” said S&P credit analyst Anita Ogbara. The service also looks for to keep generating “satisfactory profitability and significant free cash flow as a result of generally favorable pricing trends and ongoing productivity improvements.”
Ogbara also said S&P might raise its ratings on CSX credit “if funds from operations to total debt rose into the low 30 percent range, and debt to capital consistently fell below 45 percent.” The FFO to total debt is now 25 percent, she said, and debt to capital is about 50 percent.
S&P made the same moves on credit for Conrail, affirming the current “BBB” rating but boosting the outlook to positive from stable. Conrail is 42 percent owned by CSX, 58 percent by Norfolk Southern Railway.