Burlington Northern Santa Fe Corp. (BNSF) recently raised the size of its offering to $750 million of senior notes from the $500 million planned originally.
The notes offered by this prospectus supplement will not be listed on any securities exchange. Currently, there is no public market for the notes. Barclays, Goldman Sachs (GS) and Wells Fargo (WFC) were the joint book running managers for the sale.
Interest will be payable on the notes on April 1 and Oct. 1 every year at a 4.70% coupon rate. The first interest payment will be made on April 1, 2010. The notes due on Oct. 1, 2019, will be denominated as senior unsecured debt obligations of Burlington.
The company plans to use the net proceeds for general corporate purposes, including potential buyback of common stock, capital expenditures and the repayment of debt. Such debt may include its 7.125% notes, which will mature on Dec. 15, 2010. The notes will not be entitled to the benefit of a sinking fund.
It is to be noted that the Burlington has been able to maintain its ability to pay fixed charges, witnessed by an uptick in the ratio of earnings to fixed charges that stood at 5.04X in 2008, compared to 4.62X in 2007.
Rating agencies Moody’s and S&P have rated the notes Baa1 and BBB, respectively.
In July, Burlington Northern reported operating earnings of $1.18 per share, down 12% year over year. The current economic slowdown is having a deleterious impact on volumes, which fell 13% during the quarter. However, strong utility demand is expected to boost revenue going forward. We maintain a Neutral recommendation on the shares.
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