Moody's ups Kansas City Southern, rates loans Baa3

Moody's Investors Service said it upgraded Kansas City Southern and Kansas City Southern de Mexico SA de CV's corporate family ratings to Ba2 from Ba3, as well as the ratings of the Kansas City Southern Railway Co.

Moody's also said it assigned a Baa3 rating to Kansas City Southern Railroad's proposed $500 million senior secured credit facilities, consisting of a $200 million revolver due 2016 and a $300 million term loan due 2017.

The outlook is stable.

The ratings were upgraded in recognition of the substantial improvement in yields and margins experienced by both companies during this period of modest economic growth in the United States and Mexico, Moody's said.

Because of this improvement in profitability and aided by a modest amount of debt reduction, credit metrics for both entities have improved, the agency said.

Moody's said it expects that with continued steady volume growth in a strong pricing environment, these metrics will continue to improve modestly through 2011.

The ratings continue to be constrained by the size, regional concentration and historical volatility of operating profits at its railroads, the agency said.

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