Fitch rates Kansas City Southern notes BBB-

Fitch Ratings said it assigned a rating of BBB- to the $500 million notes to be issued by Kansas City Southern’s subsidiaries primary U.S. operating entity, Kansas City Southern Railway Co.

The ratings on Kansas City Southern and its two primary subsidiaries, Kansas City Southern Railway and Kansas City Southern de Mexico are unaffected.

The issuance will represent a senior unsecured obligation of Kansas City Southern Railway and will be guaranteed by Kansas City Southern, Fitch said.

The proceeds will be used to repay outstanding commercial paper and for general corporate purposes, including repurchasing shares, the agency said.

Fitch said it expects the incremental debt from the transaction to lead to increased total adjusted debt-to-EBITDAR of about 2.6x to 2.7x by year-end, declining modestly thereafter.

The ratings are supported by the company’s solid operating margins, steadily increasing revenues and moderate leverage, the agency said.

The ratings also consider a view that Kansas City Southern’s credit profile will improve in the coming years, propelled by growth opportunities in Mexico and further operating margin expansion, Fitch said.

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