DBRS Rates Burlington Northern Santa Fe Corp. at BBB (high)p

Dominion Bond Rating Service (“DBRS”) has today assigned a rating of BBB (high)p to Burlington Northern Santa Fe Corporation (“BNSF” or the “Company”). The trend is Stable. The rating reflects BNSF’s favourable operating performance, cash flow generation, and earnings outlook.

BNSF’s rail network primarily covers the U.S. West, Midwest, and Sunbelt regions and is the second largest in the U.S., which provides important scale economies. BNSF operates the shortest route between Chicago and the Pacific Northwest, which produces efficiency gains and market share advantages. In addition, BNSF’s proportion of bulk revenues is the highest in the industry. Agriculture and coal accounted for 38% of total sales in 2004, and provide a favourable balance to more economically sensitive merchandise and intermodal shipments.

Network fluidity is a competitive advantage for BNSF due to the congestion issues faced by other rail and truck competitors. BNSF’s credit metrics are among the strongest in the North American Class 1 rail industry, and coverage ratios and profitability are consistently above the U.S. rail industry average. U.S./global economic growth, tight rail/truck capacity, and robust commodity markets primarily led to the earnings rebound in 2004, and are expected to drive strong earnings over the near term. Longer-term growth is expected to trend roughly in line with GDP. However, truck market share gains provide a significant growth opportunity, given BNSF’s strong intermodal business and truck industry challenges.

DBRS notes that BNSF has funded operations internally since 1998, which has provided financial flexibility. Free cash flow has been used primarily for equity repurchases, which has limited significant improvement in BNSF’s balance sheet leverage. As a result, adjusted debt-to-capital is at the upper end of the rating range (51.5% at March 31, 2005). Furthermore, robust near-term free cash flow will likely be used for additional share buybacks, which limit material balance sheet improvement and the Company’s ability to move into the A (low) range. Nevertheless, BNSF’s favourable coverage ratios are expected to improve and provide increased balance sheet support.

Note:
p - This rating is based on public information.
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.