New York, June 11, 2015 -- Moody's Investors Service ("Moody's") assigned
an Aa2 rating to the $351 million Pass Through Certificates,
Series 2015-1 (the "Certificates") that BNSF Railway Company ("BNSF
Railway") plans to issue through the BNSF Railway Company 2015-1
Pass Through Trust. Moody's also affirmed the ratings of Burlington
Northern Santa Fe, LLC ("BNSF"), including the
A3 senior unsecured rating, and the ratings of its subsidiaries,
including BNSF Railway. The rating outlook is stable.
RATINGS RATIONALE
BNSF Railway plans to issue the Certificates through the BNSF Railway
Company 2015-1 Pass Through Trust (the "Trust"). The Trust
will use the proceeds from the sale of the Certificates to purchase Equipment
Notes that will be issued by an owner trust (the "Owner Trust")
to help finance the acquisition of certain locomotives by the Owner Trust
from BNSF Equipment Acquisition Company, LLC, a subsidiary
of BNSF Railway. The Owner Trust will lease the locomotives to
BNSF Railway. The Equipment Notes are secured by a security interest
in the locomotives as well as the right to receive rental payments from
BNSF Railway, but are not direct obligations of, or guaranteed
by, BNSF Railway.
In applying Moody's methodology for Enhanced Equipment Trust and
Equipment Trust Certificates to assign the Aa2 rating to the Certificates,
Moody's incorporated: (i) an A2 senior unsecured rating for
BNSF Railway, which is the operating railroad and the principal
subsidiary of BNSF; (ii) an estimated loan-to-value
of the Equipment Notes at the high point of approximately 85% based
on the cost of the equipment, the expected depreciation and the
amortization of the Equipment Notes; (iii) the benefits to the Owner
Trust of Section 1168 of the U.S. Bankruptcy Code;
(iv) that the Equipment Notes will each be cross-defaulted and
cross-collateralized, structural features that can enhance
the potential for affirmation of the leases and the recovery rate of the
Equipment Notes, relative to transactions that lack these features;
and (v) that the equipment being financed consists only of fairly new
locomotives, and no other rolling stock.
The A3 senior unsecured rating of BNSF considers the company's position
as one of two major freight railroads in the western U.S.,
which makes the company an integral part of the nation's transportation
infrastructure. The rating is also supported by the company's freight
diversity, relative stability in operating profits and ability to
generate robust cash flows that enable the company to make ongoing substantial
investments in its infrastructure, equipment and technology.
An increase in funding needs due to very significant capital expenditures
concurrent with only a modest reduction in shareholder distributions caused
debt-to-EBITDA to increase to about 2.4 times,
which Moody's expects to remain at this level for some time as capital
expenditures continue to be elevated. Although these investments
have helped to make BNSF's network more fluid, as indicated
by improved service measures, network capacity has yet to be tested
as freight volumes increase.
The stable rating outlook reflects Moody's expectation that BNSF will
demonstrate low single-digit volume growth and modest price increases
over the next 12 to 18 months, although revenue is likely to be
slightly negative in the near-term, taking into account a
decrease in fuel surcharges. Operating margins are expected to
improve towards 35% (calculated on a Moody's adjusted basis),
in part due to BNSF having restored its service levels to average 2013
levels.
The ratings for BNSF could be pressured if (adjusted) operating income
margins were to weaken for a sustained period of time from recent levels
of approximately 30%. Ratings could also be lowered if the
company were to accelerate its distributions to Berkshire Hathaway,
such that the incremental amount of debt to fund these distributions results
in higher leverage. Specifically, debt-to-EBITDA
approaching 2.5 times on a prolonged basis or Funds From Operations
to Debt sustained below 30% could pressure the ratings.
Inability to maintain network fluidity and service levels at BNSF's historic
levels could also pressure the rating.
Higher rating considerations could follow if there is a material reallocation
in the deployment of cash flow from shareholder distributions towards
debt repayment, while maintaining robust capital spending levels
in infrastructure and equipment that are required to maintain high service
levels over the long term. Higher ratings would be supported by
a material increase in operating margins to at least 35% and levels
of debt-to-EBITDA that are sustainably below 1.75
times.
The methodologies used in these ratings were Enhanced Equipment Trust
and Equipment Trust Certificates published in December 2010 and Global
Surface Transportation and Logistics Companies published in April 2013.
Please see the Credit policy page on www.moodys.com for
a copy of these methodologies.
Burlington Northern Santa Fe, LLC owns BNSF Railway Company,
which operates one of the largest railroad networks in North America,
with 32,500 route miles of track in the western U.S.
and also operates in three Canadian provinces. Burlington Northern
Santa Fe, LLC is an indirect, wholly-owned subsidiary
of Berkshire Hathaway Inc.
Assignments:
..Issuer: BNSF Railway Company
....Senior Secured Equipment Trust,
Assigned Aa2
Outlook Actions:
..Issuer: Burlington Northern Santa Fe, LLC
....Outlook, Remains Stable
..Issuer: BNSF Railway Company
....Outlook, Remains Stable
..Issuer: Burlington Northern, Inc.
....Outlook, Remains Stable
..Issuer: Northern Pacific Railway Company
....Outlook, Remains Stable
..Issuer: BNSF Funding Trust I
....Outlook, Remains Stable
Affirmations:
..Issuer: Burlington Northern Santa Fe, LLC
....Issuer Rating, Affirmed A3
....Senior Unsecured Regular Bond/Debentures,
Affirmed A3
....Senior Unsecured Shelf, Affirmed
(P)A3
..Issuer: BNSF Railway Company
....Senior Secured Equipment Trust Cl.
2009-A (Series A - E) , Affirmed Aa3
....All other Senior Secured Equipment Trusts,
Affirmed Aa2
....Senior Secured Regular Bond/Debentures,
Affirmed A1
..Issuer: Burlington Northern, Inc.
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2
..Issuer: Northern Pacific Railway Company
....Senior Secured Regular Bond/Debenture,
Affirmed A1
..Issuer: BNSF Funding Trust I
....Preferred Stock, Affirmed Baa2
..Issuer: Unif. Govt. of Wyandotte Co./Kansas
City, KS
....Senior Unsecured Revenue Bonds,
Affirmed A2
..Issuer: Westside Intermodal Transportation Corp.
....Senior Unsecured Revenue Bonds,
Affirmed A2
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The following information supplements Disclosure 10 ("Information
Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J)
of SEC Rule 17g-7") in the regulatory disclosures made at
the ratings tab on the issuer/entity page on www.moodys.com
for each credit rating as indicated:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person(s) that paid
Moody's to determine this credit rating.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Rene Lipsch
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Aa2 rating to BNSF's Pass Through Certificates, Series 2015-1
