Kansas City Southern repays $271 million of debt in second quarter

By Jennifer Lanning Drey

Portland, Ore., July 27 - Kansas City Southern has repaid $271 million of debt using the proceeds from its second-quarter equity offering and existing cash, Michael Upchurch, its chief financial officer, said during the company's quarterly earnings conference call held Tuesday.

The company plans to complete its previously announced debt reduction program in the third quarter and expects to have overall debt reductions well over $300 million, Upchurch said.

Among debt to be repaid during the third quarter is the remaining $64 million of Kansas City Southern de Mexico's 9 3/8% notes, he later noted.

After that debt is retired, Kansas City Southern will have no debt maturities until 2013 but will continue to monitor its debt.

"We will continue to opportunistically look at restructuring our maturities as market conditions dictate," Upchurch said.

Kansas City Southern also plans to continue to manage the business with an eye toward its goal of generating positive free cash flow going forward. The company generated $42 million in free cash flow during the second quarter, despite disproportionately high cash interest expense payments during the period, Upchurch said.

Year to date, Kansas City Southern has improved free cash flow by $200 million, compared to the first half of 2009, reflecting improvements in operations and lower capital spending.

The company had $209 million of liquidity at June 30.

Upchurch also noted during the call that at the end of the second quarter, Kansas City Southern had repaid all amounts outstanding under its revolving credit facility in the United States, making the full $125 million facility available.

Kansas City Southern currently has $145 million of bank commitments in place and is working to finalize a $100 million Mexico credit facility to further enhance its liquidity profile, he said.

Kansas City Southern reported second-quarter revenues of $461.6 million, up 35% from the corresponding period in 2009. The company said revenue growth was strong in the current-year period, compared to the second quarter of 2009, which was the weakest revenue quarter during the economic downturn.

Based in Kansas City, Mo., Kansas City Southern provides rail transportation services.

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