DBRS Downgrades CP’s Rating to BBB (low), Stable Trend and Assigns BBB (low) to New Debt Issuances

DBRS has today downgraded the Unsecured Debentures and Medium-Term Notes ratings of Canadian Pacific Railway Company (CP or the Company) to BBB (low) with a Stable trend from BBB, removing the ratings from Under Review with Negative Implications, where they were placed on November 28, 2011 (see the DBRS press release dated November 28, 2011, for further details). The downgrade follows the completion and closing of CP’s issuance made up of two tranches: (1) $250 million 4.50% notes, maturing January 15, 2022, and (2) $250 million 5.75% notes, maturing January 15, 2042. CP intends to use the proceeds to fund a voluntary prepayment of the Company’s Canadian defined-benefit pension plan in 2011. On a pro forma basis, the Company’s financial profile is no longer commensurate with a BBB rating. At the same time, DBRS has assigned a BBB (low) rating with a Stable trend to above-mentioned debt issues.

In the near term, DBRS does expect the Company to show modest improvement in operating results and debt coverage ratios. However, CP’s financial profile will likely remain at the BBB (low) range despite this improvement as the Company could face headwinds from a slowing global economy, strong competition to recover its reduced market share in intermodal traffic and the possible recurrence of inclement weather conditions similar to those experienced in H1 2011, which could hamper a meaningful recovery in its operating results.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the North American Railway Industry, which can be found on our website under Methodologies.