Approximately US$7.5 billion of debt securities affected
Toronto, June 15, 2015 -- Moody's Investors Service (Moody's) assigned Prime-1
(P-1) short term ratings to the new CAD800 million (equivalent)
U.S commercial paper program of Canadian National Railway Company
(CN) and its guaranteed subsidiary, Grand Trunk Western Railway
Company (GTWRC). Moody's also affirmed CN's A2 senior
unsecured ratings, as well as the A2 senior unsecured debt rating
of Illinois Central Railroad Company (ICRC), which is guaranteed
by CN, and A1 senior secured rating of Canadian National Railway
Company Pass Through Trust Series 1997-A2 ("PTC"). The rating
outlooks for CN, GTWRC, ICRC and PTC are stable.
RATINGS RATIONALE
CN's A2 rating is driven by the company's consistently strong, and
industry leading operating margin, low financial leverage and overall
robust cash flow to debt metrics. As well, Moody's
expects firm industry fundamentals coupled with CN's well-positioned
railway network, diverse product category exposure, and ongoing
focus on productivity improvements and service levels will support modestly
higher volume levels and yield increases modestly ahead of overall inflation.
CN's free cash flow will remain above CAD1 billion annually in Moody's
estimate even after usual robust capital expenditures to support its operations
as well as potential dividend increases. While Moody's expects
CN will buy back shares in excess of its free cash flow, the company
has excellent liquidity, and organic EBITDA growth should enable
its adjusted financial leverage to remain under 2x and funds from operations
to debt near 45%. The rating is constrained by CN's increasing
regulatory risks, exposure to economic cyclicality, and foreign
exchange exposure arising from its largely US denominated debt compared
to a balance of Canadian and US dollar cash flows.
CN has excellent liquidity. Liquidity support for the company's
CAD800 million (equivalent) U.S. commercial paper program
is provided by its CAD800 million revolving credit facility, which
matures May 2020. CN also has a separate CAD800 million Canadian
commercial paper program (unrated), which had borrowings of CAD310
million outstanding as at March 31, 2015. The maximum outstanding
amount under the company's U.S. and Canadian commercial
paper programs will be CAD800 million (equivalent) on a combined basis
at any one time.
The stable outlook reflects Moody's expectation that CN will generally
maintain its Debt/ EBITDA below 2x with a cyclical peak of around 2.25x.
CN's ratings could be upgraded if regulatory uncertainty is diminished
and Moody's expected the company would maintain adjusted Debt/ EBITDA
around 1.5x and funds from operations to debt above 50%.
CN's ratings could be downgraded as a consequence of weakness in the operating
environment, significant adverse regulatory developments or a more
aggressive financial policy. Sustained metrics associated with
a lower rating would include leverage above 2.25x and funds from
operations to debt towards 35%.
Assignments:
..Issuer: Canadian National Railway Company
....Senior Unsecured Commercial Paper,
Assigned P-1
..Issuer: Grand Trunk Western Railroad Company
....Senior Unsecured Commercial Paper,
Assigned P-1
Outlook Actions:
..Issuer: Cad Ntl Rlwy Co PassThrgh 97-A2
....Outlook, Remains Stable
..Issuer: Canadian National Railway Company
....Outlook, Remains Stable
..Issuer: Grand Trunk Western Railroad Company
....Outlook, Assigned Stable
..Issuer: Illinois Central Railroad Company
....Outlook, Remains Stable
Affirmations:
..Issuer: Cad Ntl Rlwy Co PassThrgh 97-A2
....Senior Secured Pass-Through,
Affirmed A1
..Issuer: Canadian National Railway Company
.... Issuer Rating, Affirmed A2
....Multiple Seniority Shelf, Affirmed
(P)A2
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2
....Issuer: Illinois Central Railroad
Company
....Senior Unsecured Regular Bond/Debenture,
Affirmed A2
Headquartered in Montreal, Canada, Canadian National Railway
Company is Canada's largest railroad, with a trans-continental
network covering roughly 20,000 route miles across Canada and through
mid-America down to the Gulf of Mexico.
The principal methodology used in these ratings was Global Surface Transportation
and Logistics Companies published in April 2013. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
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.
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:
Moody's was not paid for services other than determining a credit
rating in the most recently ended fiscal year by the person that paid
Moody's to determine this credit rating.
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 ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
Moody's has not provided advisory services but may have provided
Ancillary or Other Permissible Service(s) to the rated entity, its
related third parties and/or the party that requested the rating within
the past two years (including during the most recently ended fiscal year).
Please see the special report "Ancillary or other permissible services
provided to entities rated by MIS's credit rating agency in Canada"
on the ratings disclosure page www.moodys.com/disclosures
on our website for further information.
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.
Darren M. Kirk
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635
Moody's assigns P-1 short-term rating to CN's commercial paper program
