S&P Lowers Outlook on Genesee & Wyoming (GWR) to Negative; Ratings Affirmed

S&P Global Ratings said that it has revised its outlook on Genesee & Wyoming Inc. (NYSE: GWR) to negative from stable and affirmed its 'BB' corporate credit rating on the company.

At the same time, we affirmed our 'BBB-' issue-level rating on the company's senior secured credit facility. The '1' recovery rating remains unchanged, indicating our expectation that lenders would receive very high recovery (90%-100%) in a payment default scenario.

"The outlook revision reflects our belief that the company's credit metrics will likely remain pressured over the next year due to the difficult operating environment," said S&P Global credit analyst. "These depressed conditions have been caused by weak commodity traffic (especially for coal and iron ore) and the strong U.S. dollar (which reduces the revenue and earnings from the company's foreign operations)."

The negative outlook on Genesee & Wyoming reflects that the company's credit metrics have declined over the past year given its exposure to coal and iron ore traffic, which have been hard hit by the steep drop in commodity prices. We expect that the company's credit metrics will remain pressured over the next year as commodity prices remain low and the dollar remains strong, leading it to maintain an FFO-to-debt ratio of about 20% and a debt-to-EBITDA metric of 3.8x in 2016.

We could lower our ratings on Genesee over the next year if it undertakes a significant debt-financed acquisition or its earnings continue to deteriorate such that its FFO-to-total debt ratio remains below 23% and its debt-to-EBITDA metric remains above 3.5x on a sustained basis.

We could revise our outlook on Genesee to stable over the next year if the company is able to improve its earnings and/or reduce its debt such that its FFO-to-debt ratio improves to 27% or its debt-to-EBITDA metric declines comfortably below 3.5x and remains there on a sustained basis.

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