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30 Jan 2001
MOODY'S CONFIRMS THE RATINGS OF CANADIAN NATIONAL (SENIOR UNSECURED AT Baa2) AND WISCONSIN CENTRAL (SENIOR UNSECURED AT Baa2)
Approximately $3.5 billion of Debt Securities Affected.
New York, January 30, 2001 -- Moody's Investors Service confirmed the Baa2 senior unsecured debt rating
of Canadian National Railway (CN) as well as the Baa2 senior unsecured
debt rating of Wisconsin Central Transportation Corporation (WCLX) following
today's announcement of CN's plans to acquire WCLX in a transaction valued
at approximately $1.2 billion. Moody's anticipates
that CN will provide appropriate support for the WCLX debt it will assume
in the merger. With the proposed merger, Moody's also changed
the rating outlook of WCLX debt to stable from negative and noted that
CN's rating outlook remains stable.
Ratings confirmed are:
Canadian National Railway: Senior unsecured, bank credit agreement
at Baa2; convertible subordinated securities at Baa3; pass through
certificates at A3.
Wisconsin Central Transportation Corporation: Senior unsecured notes,
bank credit agreement at Baa2.
Illinois Central Railroad: Senior unsecured at Baa2; income
debentures at Ba1; commercial paper at Prime-2. (Guaranteed
by Canadian National Railway).
According to Moody's, CN is now the lowest cost operator among the
major North American railroads and is well positioned to capitalize on
the continuing strong U.S/Canada trade flow. Through its
low cost structure, additional customer service initiatives,
and continuation of the successful integration of the Illinois Central
Railroad (IC), CN is expected to generate solid free cash flow from
operations going forward. WCLX's operating strategy of delivering
a consistently high level of customer service rather than focus on strict
cost reductions has produced good top-line growth, an operating
ratio lower than the industry average, and stable free operating
WCLX's operating area in the state of Wisconsin and the surrounding states
is complementary to CN's core east to west route in Canada and the north
to south line it acquired through the IC. Together, the WCLX
and CN lines provide more routing alternatives into and around the high
volume Chicago gateway, opportunities for equipment rationalization,
and longer lengths of haul for WCLX's shippers. Moody's points
out that CN and WCLX already have a solid working relationship as CN is
WCLX's largest customer through a haulage agreement, and both are
large carriers of forest products.
The merger has been approved by the Board of Directors of both CN and
WCLX, but is subject to approval by WCLX shareholders. The
transaction also requires the approval of the Surface Transportation Board
(STB). Both managements of CN and WCLX believe that the transaction
should be treated as a 'minor' one by the STB. If so, it
would not be subject to the existing moratorium on merger applications
for Class I railroads nor require lengthy STB review of CN's application.
Should the STB not consider the merger to be a 'minor' transaction,
CN reserves the right to terminate the merger agreement without penalties.
This considerably reduces the regulatory risk that was seen in other recent
rail mergers. Also, the transaction would not need to be
reviewed under the new merger rules proposed by the STB but yet to be
CN's adjusted leverage is the lowest in the railroad industry and relatively
moderate for its rating category. WCLX, however, has
used somewhat higher leverage largely to fund its varied international
investments. Moody's notes that while post merger consolidated
leverage would increase, the pro-forma debt protection statistics
would still be within the range of other industry peers and expected to
improve over time from CN and WCLX's operating cash flow, proceeds
from the sale of WCLX's international investments, and realizing
some of the projected merger synergies.
Canadian National Railway, based on Montreal, Canada operates
a trans-continental Canadian Railway as well as line from Chicago
south to New Orleans. Wisconsin Central Transportation Corporation,
based in Rosemont, Illinois, operates approximately 2,800
miles of railroad track in Wisconsin and its surrounding states and has
investments in railroads operating in England, New Zealand and Australia..
Michael J. Mulvaney
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
V.P. - Sr Credit Officer
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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