Moody's may downgrade RailAmerica

Moody's Investors Service said it placed RailAmerica Transportation Corp.'s Ba3 corporate family rating and Ba2 (LGD2, 26%) senior secured rating under review for possible downgrade following the announcement of the planned acquisition of RailAmerica by an affiliate of Fortress Investment Group LLC.

The announcement indicated that the existing rated credit facilities will be refinanced. If so, Moody's will withdraw the existing ratings at such time. If the existing facilities are not repaid, the agency will consider in its review the effect of the resultant capital structure on RailAmerica's leverage and coverage as well as the outlook for demand across RailAmerica's railroads.

The agency said it believes that the announced transaction indicates the willingness of the company to explore a more leveraged capital structure if the transaction does not proceed. More leverage could restrict financial flexibility, particularly if the declines in monthly car loads (on a same railroad basis) reported throughout 2006 continue or if higher costs pressure the operating ratio. The debt-to-EBITDA ratio was 4.9x at Sept. 30.

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