Approximately $10 billion of debt securities affected
New York, March 23, 2010 -- Moody's Investors Service has upgraded most ratings of Burlington
Northern Santa Fe, LLC ("BNSF"), and its wholly-owned
subsidiaries. The senior unsecured debt rating of BNSF, a
holding company, has been raised to A3 from Baa1. The senior
unsecured rating of its railroad operating subsidiaries has been raised
to A2 from A3. The short term rating is affirmed at P-2,
and most of the ratings on Equipment Trust Certificates were confirmed
at Aa2. The ratings outlook is stable. This concludes the
ratings review commenced on November 3, 2009.
The ratings upgrade recognizes that BNSF will no longer be subject to
the same pressures to return capital to shareholders that it faced as
a publicly-held company, now that BNSF is owned by Berkshire
Hathaway. This removes a financial policy impediment that had limited
a higher rating in the past. BNSF's attractive position as
a western railway and long track record of solid operating performance
with good control of costs are characteristic of the revised A2 senior
rating. Past share repurchase activity, aggressive at some
times, had prevented an upgrade to the A2 level. We note
that Berkshire Hathaway (senior unsecured Aa2) does not guarantee BNSF's
debt. As such, BNSF's debt ratings have not been given
any upward lift based on expectations for support from Berkshire Hathaway.
Over the next few years, Moody's expects that BNSF will generate
cash flow from its operations in excess of $3 billion, an
amount likely to increase given the operating leverage in BNSF's
rail business as rail freight traffic recovers. This cash flow
will be more than adequate to cover debt service requirements, to
continue to make sizeable investments in its rail network, and to
pay dividends to Berkshire Hathaway. We do not anticipate debt
levels to increase much beyond the present level. So, credit
metrics are expected to improve steadily as freight railroad demand increases
over the next few years and achieve levels that are in line with other
companies also at the A2 rating level.
The ratings of most ETC's were confirmed at Aa2, reflecting
our view that the level of certainty about the underlying collateral is
not consistent with an Aa1 rating.
As improvement in the railroad sector is expected to be gradual over the
next couple of years, it is unlikely that BNSF's ratings would
be further upgraded in the near term. Over the longer term,
ratings could be revised upward if free cash flow is employed towards
substantial reduction of debt while sustaining robust investment in the
company's network. Higher ratings could be considered if
Debt to EBITDA falls below 2 times, EBIT to Interest is greater
than 7 times, and Retained Cash Flow is greater than 30%
of Debt.
Ratings could be lowered if the company undertakes an aggressive policy
to return capital to Berkshire Hathaway, particularly if it were
to raise a substantial amount of debt to fund portions of the distributions
to the owners. Debt to EBITDA in excess of 3 times or Retained
Cash Flow below 20% of Debt for a prolonged period could result
in lower rating consideration. Also, the company may face
downward ratings pressure if it's industry leadership position were
to deteriorate, resulting in weaker service metrics, lower
returns on investments, and operating ratios in the high-70%
range.
Upgrades:
..Issuer: BNSF Railway Company
....Senior Secured Equipment Trust,
Upgraded to Aa3 from A1
....Senior Secured Regular Bond/Debenture,
Upgraded to A1 from A2
..Issuer: Burlington Northern Santa Fe, LLC
....Issuer Rating, Upgraded to A3 from
Baa1
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A3 from Baa1
....Senior Unsecured Shelf, Upgraded
to (P)A3 from (P)Baa1
..Issuer: Burlington Northern, Inc.
....Senior Unsecured Regular Bond/Debenture,
Upgraded to A2 from A3 (Assumed by BNSF Railway Company)
..Issuer: Northern Pacific Railway Company
....Senior Secured Regular Bond/Debenture,
Upgraded to A1 from A2 (Assumed by BNSF Railway Company)
..Issuer: Unif. Govt. of Wyandotte Co./Kansas
City, KS (Guaranteed by BNSF Railway Company)
....Senior Unsecured Revenue Bonds,
Upgraded to A2 from A3
..Issuer: Westside Intermodal Transportation Corp.
(Guaranteed by BNSF Railway Company)
....Senior Unsecured Revenue Bonds,
Upgraded to A2 from A3
Confirmed
..Issuer: BNSF Railway Company
....Senior Secured Equipment Trust,
at Aa2
..Issuer: Atchison, Topeka and Santa Fe Railway
Company
....Senior Secured Equipment Trust,
at Aa2 (Assumed by BNSF Railway Company)
Outlook Actions:
..Issuer: Atchison, Topeka and Santa Fe Railway
Company
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: BNSF Funding Trust I
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: BNSF Railway Company
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Burlington Northern Santa Fe, LLC
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Burlington Northern, Inc.
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Northern Pacific Railway Company
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: BNSF Funding Trust I
....Preferred Stock Preferred Stock,
Upgraded to Baa2 from Baa3
The last rating action was on November 3, 2009, when BNSF's
ratings were placed under review for upgrade.
The principal methodology used in rating BNSF was Moody's Global Freight
Railroad Methodology, published in March 2009 and available on www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Burlington Northern Santa Fe, LLC owns the BNSF Railway Company,
the 2nd largest Class I railroad. BNSF Railway operates over 32,000
route miles of track in the western U.S.
New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
David Berge
Corporate Finance Group
Moody's raises BNSF's ratings; railway sr. unsecured to A2