Moody's downgrades Kansas City Southern, rates loans B1

Moody's Investors Service said it downgraded Kansas City Southern's corporate family rating to B2 from B1 and preferred stock to Caa2 from Caa1, Kansas City Southern Railway Co.'s senior unsecured debt to B3 from B2, senior secured debt to B1 from Ba3 and bank credit facilities to B1 from B3 and Kansas City Southern de Mexico SA de CV's senior unsecured debt rating to B3 from B2.

The agency also assigned a B1 rating to $371 million of new secured bank credit facilities available to Kansas City Southern Railway. The outlook is negative. These actions complete the review for possible downgrade begun on April 5.

Moody's said downgrades reflect the reduced financial flexibility and strained liquidity which limit Kansas City Southern's ability to handle unexpected shocks to its railroad network. Higher consolidated leverage (debt to EBITDA of 8.1x for 2005), along with weaker cash balances and lower availability under the revolver, resulted in part from a series of transactions related to the acquisition of Kansas City Southern de Mexico.

Offsetting the weak metrics, Kansas City Southern Railway has strong asset protection for debt holders with over $2.2 billion of assets, and the bank credit facilities are secured by substantially all of the non-investment assets of Kansas City Southern Railway, the agency said.

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