S&P: Six North American railroads improve profiles

Standard & Poor's said in a report that the six large North American railroads left standing after several rounds of consolidation have strengthened their financial profiles within the past few years.

The report said the remaining players are the two Western U.S. railroads, Burlington Northern Santa Fe Corp. (BNSF, rated BBB+/stable/A-2) and Union Pacific Corp. (BBB/stable A-2), two Eastern U.S. railroads, CSX Corp. (BBB/stable/A-2) and Norfolk Southern Corp. (BB+/stable/A-2) and two Canadian railroads, Canadian National Railway Co. (A-/stable/A-2) and Canadian Pacific Railway Co. (BBB/stable).

"The railroad operators also benefit from participation in an industry that we view as having strong business risk fundamentals because of its limited cyclicality, effective barriers to entry and good access to capital, including low-cost equipment financing," said S&P credit analyst Lisa Jenkins.

The latter is especially important given the industry's capital-intensive nature, the report noted.

Mergers have been the catalyst for the biggest rating changes and impairment in credit quality in the railroad industry in the past 15 years, S&P said, noting that despite the opportunities the combinations created, they have often caused a deterioration in the financial profile of the acquiring railroad due to increased debt levels and integration issues.

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