Moody's rates Kansas City Southern notes B2

Moody's Investors Service said it assigned a B2 senior unsecured rating to Kansas City Southern de Mexico, SA de CV's new senior notes due 2018 and affirmed its other ratings, including the B2 corporate family rating.

The outlook is stable.

The proceeds will be used to redeem up to $290 million of the company's 9 3/8% notes due 2012.

The B2 corporate family rating reflects Moody's expectations that the company's credit metrics, cash flows and liquidity will steadily improve to levels appropriate for its ratings over the next 12 to 18 months as the industry experiences a modest recovery in freight volume through 2010.

However, the agency said that because of Kansas City Southern de Mexico's exposure to the freight groups associated with the U.S. automobile and housing sectors, as well as the consumer goods markets in both the United States and Mexico, financial results are expected to be materially impacted by slack demand for freight services.

The ratings also take into account the litigation against the company and its parent by an affiliate of Ferrocarril Mexicano, SA de CV that claims the defendants violated some rules and regulations during the bidding process for their majority interest in Ferrocarril del Noreste, SA de CV (now Kansas City Southern de Mexico) in 1997 and that the acquisition should be declared null and void. Moody's believes the probability of an unfavorable outcome from this lawsuit is low, but it said the severity of any negative outcome could be substantial.

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