Fitch rates Kansas City Southern notes BBB

Fitch Ratings said it assigned a rating of BBB to the $250 million notes to be issued by Kansas City Southern (KCS).

Corporate ratings for KCS and its two primary subsidiaries, Kansas City Southern Railway Co. (KCSR) and Kansas City Southern de Mexico (KCSM), are unaffected.

The new issuance will represent a senior unsecured obligation of KCS, and will rank pari passu with all of the company's existing unsecured debt. The notes will mature in May 2026, and proceeds will be used primarily to pre-fund $250 million in floating-rate notes that mature in October 2016. As with KCS' existing unsecured debt, the notes will feature a guarantee from KCSR.

Fitch said KCS' ratings are supported by a strong balance sheet, its efforts to control costs and improving operating margins.

Total adjusted debt/EBITDAR has remained relatively steady at around 2.5 times over the past few years, which the agency views as consistent with the BBB rating. Fitch expects that leverage may decline incrementally over the intermediate-term.

Other credit metrics have improved materially, including a funds from operations (FFO) fixed-charge coverage ratio that has gone from 4.4 times as of year-end 2012 to 7.6 times as of year-end 2015.

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