Kansas City Southern eyes investment-grade rating, to call 13% notes

By Aleesia Forni

Columbus, Ohio, Sept. 21 - Kansas City Southern expects to obtain an investment-grade credit rating by reducing its debt, according to chief financial officer Michael Upchurch.

The company has cut debt by $447 million since 2008 and expects to pay off its 13% notes in the United States with cash on hand during the fourth quarter of 2011.

"We'll go ahead and call those, and that will be an incremental $20 million of interest expense that you won't see on our P&L in 2012 that is there in 2011," Upchurch said during the company's presentation at the 2011 Citi Global Industrials Conference.

Once this transaction is completed, the company will have no "major" debt maturities until 2015, Upchurch said.

Upchurch believes the upgrade to an investment-grade credit rating would decrease interest rates by roughly 2%.

Kansas City Southern has reduced its interest expense by roughly $50 million through a combination of refinancing and paying down debt.

"We do think we have ample opportunity to continue to take cost out of the P&L and certainly from a capital structure standpoint," Upchurch said.

Though liquidity was an issue for the company during the depths of the recent recession, the company has rebuilt and continues to improve liquidity due to a recent refinancing in July.

"We're currently in market with a new facility in Mexico that will continue to increase our overall liquidity," Upchurch said.

The company ended the second quarter with $381 million of liquidity.

Kansas City Southern is a Kansas City, Mo.-based transportation holding company.

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