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S&P downgrades Kansas City Southern
Standard & Poor's said it lowered the corporate credit rating of Kansas City Southern and Kansas City Southern de Mexico SA de CV to B from BB- and Kansas City Southern's senior secured debt rating to BB- from BB+ and senior unsecured debt rating to B- from B+. All ratings, including the CCC preferred stock, remain on CreditWatch with negative implications, where they were placed April 4.
The rating actions reflect S&P's increased concerns regarding the company's liquidity position. In its 10-K report filed on April 7, Kansas City Southern disclosed that its total liquidity was about $68 million at Dec. 31 and that liquidity was further reduced on March 31 by various payments totaling $44 million. Much of the $44 million in payments related to the settlement of obligations owed to TMM, Kansas City Southern's former joint venture partner.
Kansas City Southern has gotten waivers from its bank lending group for various covenant violations in recent months and is replacing its existing facility with a new facility. The new facility, which is expected to close this month, will be the same size as the existing facility and will contain terms and conditions similar to the existing facility, but with some added flexibility, the agency said.
Liquidity will remain constrained, however, due to bond indenture restrictions. At Dec. 31, Kansas City Southern failed to meet the consolidated coverage ratio (EBITDA/interest expense) threshold of 2.00:1. The company has stated that it expects to remain below this threshold until the end of the third quarter of 2006, which will limits its ability to pay cash dividends and to incur additional debt.
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