DBRS Morningstar Assigns Rating of “A” with a Stable Trend to Canadian National Railway's New Notes

DBRS Limited (DBRS Morningstar) assigned a rating of “A” with a Stable trend to the $450 million Notes (the Notes) issued by Canadian National Railway Company (CN or the Company). The Notes were issued under the base-shelf prospectus dated February 13, 2018, which allows for offerings up to $6.0 billion equivalent of debt securities and are pursuant to CN’s July 12, 2013, trust indenture. The rating being assigned is based upon the rating on already-outstanding series of the above-mentioned debt instrument.

The Notes will mature in 2050 and rank equally and rateably with all of CN’s other unsecured and unsubordinated obligations. Proceeds of the Notes will be used for general corporate purposes, including redemption and refinancing of outstanding indebtedness, share repurchases, acquisitions and other business opportunities.

The current rating reflects CN’s continued strong market position and focus on operating efficiency, which supports growing earnings and cash flows from operations. In 2019, CN continued to substantially increase its capex program when compared with 2018, in order to support and accommodate strong demand across its network in a manner that preserves its fluidity, train velocity and, ultimately, its operating efficiency. The Stable trend reflects DBRS Morningstar’s expectation that the Company will continue to execute on efforts to grow its business in a resilient and sustainable manner while maintaining a financial profile consistent with the ratings, such as adjusted debt-to-EBITDA below 2.0 times (x) and adjusted cash flow-to-debt above 40%. CN’s financial profile as of the last 12 months ended Q3 2019 is considered consistent with the current rating.

DBRS Morningstar expects the Company’s financial metrics to remain commensurate with the rating and does not see any near-term factors that could lead to a positive rating action; however, an erosion in leverage caused by weaker earnings and/or higher debt to fund shareholder distributions, such that cash flow-to-debt declines below 35% and debt-to-EBITDA increases above 2.0x on a sustained basis, could lead to a negative rating action.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Railway Industry, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies & Criteria.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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