Fitch Rates CSX's Sr. Unsecured Notes 'BBB-'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned a 'BBB-' rating to CSX Corporation's (NYSE: CSX) new senior unsecured notes. Approximately $400 million in proceeds from the new seven-year and 30-year notes will be used to repay CSX's senior unsecured notes due 2008. The remainder will be used for general corporate purposes, including common stock repurchases. The Issuer Default Rating (IDR) for CSX is 'BBB-' and the Rating Outlook is Stable.

CSX's ratings reflect continuing improvement in the railroad's operating performance and ongoing free cash flow strength, balanced against expectations for higher leverage as the company borrows to fund share repurchases. Near-term financial prospects for the company remain good, as ongoing industry pricing strength and export volume growth offset weakness in volumes tied to the housing and automotive sectors. Longer-term, Fitch expects continued growth in industry demand to benefit CSX, as highway congestion, high fuel prices and an increasing focus on environmental concerns drive more freight traffic onto the railroads.

Last week, CSX announced a new share repurchase program that authorizes a total of $3 billion in share repurchases through year-end 2009. The new authorization includes approximately $600 million in remaining authorization from an earlier program. Although CSX will likely fund a substantial portion of the repurchases with borrowed funds, Fitch expects the company's improving margin performance and relatively strong operating cash flow to help the company maintain credit metrics consistent with its 'BBB-' ratings despite the increased debt load.

Although industry volume growth will likely be limited in 2008 as a result of the weakening U.S. economy, pricing strength (including the effect of fuel surcharges) and continued gains in operating efficiency could drive further improvement in CSX's operating ratio (adjusted for non-recurring items), which improved by 170 basis points to 77.8% in 2007. Near-term concerns center primarily on potential changes in corporate governance that could increase risk for creditors if activist shareholders are successful in gaining five seats on the company's Board of Directors. In such a scenario, CSX could potentially take an increasingly aggressive stance toward allocating capital to shareholders, while increasing the company's debt load and reducing capital spending, materially weakening the company's credit profile.

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