Kansas City Southern refinances $1.2 billion of corporate debt in Q2

By Lisa Kerner

Charlotte, N.C., July 19 - Kansas City Southern president and chief executive officer David L. Starling said, "Without question, a major highlight of this past quarter was our highly successful refinancing of approximately $1.2 billion of KCS corporate debt.

"As the result of accessing the market on a particularly good day, KCS was able to lower its weighted average coupon to 3.7%, the lowest among the class-one railroads.

"We were also able to extend the weighted average maturity of KCS debt to 14.2 years - almost twice longer than where we were at the end of 2012."

The weighted average coupon had been 5.4%.

Starling made his comments during the company's second-quarter earnings call on Friday.

The CEO credited chief financial officer Mike Upchurch and his team "for being on a mission for the last three years to achieve investment-grade status."

According to Starling, the status was achieved in March, and Kansas City Southern went to market in April.

The balance sheet recapitalization helped drive interest expense down $6 million.

"This refinancing also resulted in a $111 million charge to earnings as a result of debt retirement costs, primarily premiums to retire existing notes along with other transaction fees and expenses," Upchurch said on the call.

Upchurch said the new debt funded the retirement of higher-rate notes along with the purchase of $155 million of locomotives acquired under lease agreements.

Financial highlights

"We're very pleased with our second-quarter results, especially in light of having to manage through the revenue impacts of one of the worst droughts in U.S. history," Starling said.

"One the whole, KCS hit its targets for the quarter and remains on a solid growth trajectory."

Revenues grew 6% year-over-year to a record $579 million.

Operating income was up 12% at $179 million, while the operating ratio improved 1.5 points to 69%, according to the company's earnings news release.

Second-quarter diluted earnings per share were $0.14, compared with diluted EPS of $1.09 in the second quarter of 2012.

The Kansas City, Mo.-based freight transportation company's adjusted diluted EPS were up 9% at $0.96.

Operating expenses were 4% higher compared to the second quarter of 2012 at $400 million.

Reported net income totaled $15 million, or $0.14 per diluted share, compared with $120 million, or $1.09 per diluted share, in the second quarter of 2012.

Carload volumes rose 3%.

Kansas City Southern declared a dividend on May 2 of $0.215 per share for a total of $23.8 million. The dividend was paid on July 3.

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