Moody's downgraded Union Pacific Corp.s long-term ratings, including its senior unsecured rating, to Baa1 from A3 with a stable outlook, citing the railroad's $20 billion stock buyback plan.
"The ratings downgrade reflects Moody's expectation of more elevated risk given the considerable increase in financial leverage due to Union Pacific's intent to repurchase in aggregate about $20 billion of shares through 2020, well in excess of anticipated free cash flows over this period," Moody's said.
The rating agency also noted the company's revised financial policy, which includes maintaining a debt to EBITDA ratio of up to 2.7x, from its original limitation of up to 2x. Moody's said the ratings could be upgraded if the company reverts to the prior policy, including debt to EBITDA ratio target of up to 2.25% or less.
"Moody's projects free cash flow to be more than $2.5 billion in 2018, boosted by lower cash taxes following the enactment of the Tax Cuts and Jobs Act of 2017 and a moderation in capital expenditures to less than 17% of revenues following a peak in investments in 2015," the rating agency said.
