Moody's assigns Baa3 rating to KCSR's term loan A-2

Moody's assigns Baa3 rating to KCSR's term loan A-2

New York, January 31, 2012 -- Moody's Investors Service assigned a Baa3 rating to The Kansas City Southern Railway Company's ('KCSR') $275 million senior secured term loan A-2 due 2017. The company's other ratings (corporate family rating of Ba1) are unaffected by the action.
The ratings outlook is stable.


With a rapid restoration in freight volume and yield, Kansas City Southern's credit profile has improved materially through the business cycle recovery, supporting its Ba1 corporate family rating, as credit metrics are trending towards levels more typical of higher-rated railroad companies. These metrics have additionally benefited from a material amount of debt repayment that the company has completed over the past year, and KCSR's debt now approximates 100% of revenue generated by US operations - a level that is largely in-line with other Class I railroad companies. Over the longer term, the ratings are supported by on-going improvement in the company's railroad operations, stemming largely from robust levels of investment in both its equipment and infrastructure over the past several years. These investments will be important in the company's long-term ability to sustain the service levels required to support pricing going forward.

Although KCS's corporate family rating primarily relates to operating results at the U.S railroad (KCSR), it is also indirectly affected by the risk profile of its Mexican railroad subsidiary KCSM, to the extent that the parent may need to support that entity in the event of financial distress. KCSM currently has a corporate family rating of Ba2, with a stable ratings outlook.

KCSR intends to use proceeds from the new term loan A-2 to redeem, via tender offer, $275 million of existing senior unsecured notes due 2015.
Terms and conditions under the new term loan A-2 are similar to those of the company's existing senior term loan included in its senior secured credit facility. This transaction is part of a strategy to refinance higher-coupon senior notes that the company has undertaken over the past few years, culminating with the planned redemption of the only existing senior notes that KCSR currently has outstanding. The refinancing has helped to lower interest costs. However, as KCSR's debt structure is comprised predominantly of bank debt, this increases floating interest rate exposure and refinancing risk when compared to a capital structure that includes a substantial amount senior notes, as the average maturity of KSCR's term loans is only approximately 4.5 years.

KCSR's senior secured credit facilities, which includes the new term loan A-2, are rated Baa3, one notch above the corporate family rating, in consideration of a sufficient amount of unsecured liabilities in the company's capital structure that is junior to this facility, per Moody's Loss Given Default Methodology.


..Issuer: Kansas City Southern Railway Company (The)

....Senior Secured Bank Credit Facility, Assigned Baa3, LGD3, 36%

The principal methodology used in rating Kansas City Southern and The Kansas City Southern Railway was the Global Freight Railroad Industry Methodology published in March 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on for a copy of these methodologies.

Kansas City Southern ("KCS') operates a Class I railway in the central U.S. (The Kansas City Southern Railway Company, `KCSR') and, through its wholly-owned subsidiary Kansas City Southern de Mexico, S.A. de C.V.
(`KCSM'), owns the concession to operate Mexico's northeastern railroad.


Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on

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