S&P Global Ratings lowered Union Pacific Corp.'s corporate credit rating to A- from A following the railroad company's proposed plan to repurchase $20 billion of shares through 2020.
The share buyback will be partially funded through incremental debt and increased cash flow based on lower cash taxes under the revised U.S. tax code. While the rating agency expects Union Pacific's revenue and earnings to grow modestly in line with projected growth in the U.S. economy, as well as cost controls to continue through 2020, S&P said the company's improved operating performance will be "more than offset by the incremental debt used to finance a portion of the share repurchase plan, weakening its strong credit metrics."
S&P anticipates the company's debt-to-EBITDA increasing to the low 2x area in 2018 and to the mid-2x area in 2019 from 1.7x in 2017. The company's fund from operations-to-debt ratio is expected to fall to mid-30% area in 2018 and to high 20% area in 2019, as compared to 43% in 2017.
The rating agency also lowered the short-term rating to A-2 from A-1 and all other issue-level ratings by one notch. The outlook on Union Pacific is stable, based on the expectation that the credit metrics will remain relatively consistent at their new levels through 2020, pro forma for the share repurchases.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
