MOODY'S UPGRADES LONG-TERM DEBT RATINGS OF SOUTHERN PACIFIC RAIL CORPORATION (Sr. to Ba1) AND ITS PRIMARY SUBSIDIARY SOUTHERN PACIFIC TRANSPORTATION COMPANY (ETCs to A2)
New York, 09-12-96 -- Moody's Investors Service upgraded the long-term debt ratings of Southern Pacific Rail Corporation (SP), senior unsecured to Ba1 from Ba3, and those of its primary subsidiary, Southern Pacific Transportation Company, senior secured to Baa2 from Ba1 and ETCs to A2 from Baa1. These actions were prompted by the consummation of the acquisition of SP by Union Pacific (UP) and acknowledge the importance of SP within the UP system. Although UP will not, at the present time, guarantee or assume the debt obligations of SP, Moody's anticipates that SP will derive significant benefits from the merger, leading to improved operating performance and greater financial strength. This concludes a review initiated on July 8, 1996.
On September 11, 1996, UP consummated the merger with SP which had been approved by the Surface Transportation Board in early July. The combined company will form the largest railroad in the U.S., will be able to provide extended single-line service throughout the western part of the country, and be strategically positioned to serve the Mexican market. Moody's expects SP to derive significant operating benefits over the intermediate term from the merger, including needed capital infusion to upgrade its system, access to a greater pool of customers, and improved efficiency and customer service.
The Ba3 rating for SP takes into account the strengths which UP brings to the merger but also recognizes that the company will not benefit from any direct financial support from UP. UP recently noted that it intends to combine the operations of SP with UPRR at some point in the future, subject to certain conditions. The ultimate assumption or guarantee of the SP debt would have positive implications for SP.
Southern Pacific Rail Corporation is a wholly-owned subsidiary of Union Pacific Corporation, a holding company headquartered in Bethlehem, Pennsylvania. Through its subsidiaries, UP is engaged in railroad and truck transportation.
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