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Announcement:

Moody's affirms Baa3 ratings of CSX Corp; outlook positive

18 May 2011

Approximately $7.8 billion of debt affected

New York, May 18, 2011 -- Moody's Investors Service has affirmed the debt ratings of CSX Corporation ("CSX") and its subsidiaries, senior unsecured at Baa3 and changed the rating outlook to positive from stable. The rating action recognizes the benefits of productivity enhancements instituted over the past several years that have led to steady improvements in CSX's operating ratio (1-operating margin), which was 72.5% for the first quarter ended 3/31/11. As freight volume continues to grow with the recovering economy, CSX's lower operating ratio should yield improved earnings and cash flow and result in stronger financial metrics. CSX is likely to direct a portion of its free cash flow to share repurchases as evidenced by the recently-renewed share repurchase authorization. The positive rating outlook considers the potential for a higher rating over the coming 12 months if share repurchase activity is maintained within the company's free cash flow generation and continued operating improvements further strengthen leverage and coverage metrics.

Moody's cites the improving trend in CSX's operating margin as a key supporting factor behind our expectations for strong operating cash flows over the next few years. CSX has been able to improve its operating ratio through strong revenue growth and aggressive actions to enhance productivity of its network. Freight volume has grown ahead of GDP and the company has achieved continued strong pricing which helps to offset fuel cost pressures. At the same time the company's productivity actions have helped reduce costs related to its infrastructure, equipment and crewing even as freight volumes have grown. Moody's estimates that the company will generate operating cash flow of $2.5 to $3 billion in 2011, and that even with capital spending of up to about 20% of revenue, including for maintenance, positive train control and growth, the company will remain strongly free cash flow generative.

On May 5, 2011, CSX announced that its Board of Directors had approved a $2 billion share repurchase program, to be executed over the next two years. While sizeable, the new policy represents a scaling back from prior levels of share repurchases: CSX spent an average of $1.7 billion annually since 2007, with the exception of 2009, when repurchases were suspended during the industry downturn. Moody's expects that stock purchases through 2012 will be funded largely with cash from the 2011 opening balance sheet and free cash flow while maturing debt will continue to be refinanced. By moderating its share repurchase program, CSX will be better able to maintain, and possibly improve on, its leverage. CSX's Debt to EBITDA was 2.4 times as of March 2011 -- a level that maps closely to a Baa2 rating.

The positive rating outlook reflects Moody's expectations that CSX will be able to improve its operating ratio to the high-60% range through 2011, which will result in strong positive free cash flow that will cover a substantial portion of planned share repurchases. Debt levels are not expected to increase materially over this time.

Ratings could be raised if, after implementing a significant portion of the planned share repurchases, the company shows that it can sustain leverage (Debt to EBITDA) below 2.5 times, Retained Cash Flow to Debt in excess of 25%, and EBIT to interest coverage of over 4.5 times. Ratings could be stabilized if the company instead resumes a policy of significantly increasing debt to fund share purchases, or if operating conditions deteriorate unexpectedly over the near term, such that leverage approaches 3.0 times or Retained Cash Flow to Debt approaches 20%.

Outlook Actions:

..Issuer: CSX Capital Trust I

....Outlook, Changed To Positive From Stable

..Issuer: CSX Corporation

.... Outlook, Changed To Positive From Stable

..Issuer: CSX Transportation, Inc.

.... Outlook, Changed To Positive From Stable

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history

The principal methodology used in rating CSX and Consolidated Rail was the Global Freight Railroad Industry Methodology, published March 2009.

CSX Corporation, based in Jacksonville Florida, operates a Class I railroad in the eastern United States.

New York
David Berge
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Baa3 ratings of CSX Corp; outlook positive
No Related Data.
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