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Fitch Rates CSX's New Notes 'BBB-'

^{Published on 2009-01-14 15:52:46, Last Modified on 2009-01-14 15:53:34 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has assigned a rating of 'BBB-' to CSX Corporation's (NYSE: CSX) $500 million in new senior unsecured 7.375% notes due 2019. Proceeds from the new notes will be used for general corporate purposes, including the repayment of a $200 million note maturity in November 2009. The Issuer Default Rating (IDR) for CSX is 'BBB-'. The Rating Outlook is Stable.

CSX's ratings reflect the notable improvement in the railroad's operating performance over the past several years and expectations for relatively strong free cash flow over the medium term, despite a decline in near term demand driven by the U.S. recession. Although Fitch expects volumes to be down through much of 2009, particularly in more economically-sensitive lines of business like autos and intermodal, pricing is expected to be relatively resilient, although perhaps somewhat weaker than earlier forecasts suggested. Despite the weakness in current market conditions, however, Fitch expects CSX's credit profile to remain in line with its 'BBB-' IDR over the medium term. Over the longer term, Fitch continues to expect railroad industry demand will grow, as highway congestion, high fuel prices and an increasing focus on the environment drive more freight traffic onto the rails.

Near term concerns include the potential for a deeper-than-expected recession to negatively affect CSX's credit profile and the company's large share repurchase program, which likely will use a substantial portion of the company's free cash flow. As of Sept. 26, 2008, CSX had remaining authority to repurchase approximately $2 billion in shares by year-end 2009. Although CSX has flexibility to reduce the amount spent on share repurchases should free cash flow fall below its expectations, Fitch projects that the company will continue to focus on share repurchases as a key element of its free cash flow deployment plans in the near term.

The potential for increased industry pricing regulation is also a risk facing the CSX and the other U.S. Class I railroads. As pricing has increased significantly over the past several years, shippers have increasingly called on the Federal government to reign in rail transportation costs. Fitch does not expect the industry to be wholly reregulated in the near term. However, a meaningful change in pricing regulations could negatively affect CSX's return on invested capital and free cash flow.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.