S&P places BB- rating on RailAmerica following company's merger agreement with Genesee & Wyoming

Nevin Barich

NEW YORK , July 23, 2012 (press release) – Overview

-- On June 23, 2012, Jacksonville, Fla.-based RailAmerica Inc. announced a definitive merger agreement with Genesee & Wyoming Inc. (unrated).

-- We are placing our 'BB-' rating on the company on CreditWatch with developing implications.

-- The CreditWatch listing reflects the possibility that we could raise, affirm, or lower the rating following our review of the pro forma business and financial risk profiles. Rating Action On July 23, 2012, Standard & Poor's Ratings Services placed its ratings, including its 'BB-' corporate credit rating, on U.S.-based RailAmerica Inc. on CreditWatch with developing implications. Rationale The CreditWatch placement follows an announcement by RailAmerica that it has reached a definitive merger agreement with Genesee & Wyoming Inc. (unrated). Genesee & Wyoming will acquire RailAmerica for a purchase price of $27.50 per share, or an estimated transaction value of $2 billion. Financing for the transaction will be a combination of bank debt and mandatorily convertible preferred equity contributed by The Carlyle Group. The ratings on Jacksonville, Fla.-based RailAmerica Inc. reflect the company's capital intensity, and acquisitive growth strategy. The company's position as the largest "short-line" railroad company in the U.S. and its participation in the relatively stable North American freight railroad industry somewhat offset these weaknesses. RailAmerica operates about 7,400 miles of track through a portfolio of 43 individual railroads, which it acquired over time, in 28 states and three Canadian provinces. Standard & Poor's characterizes the company's business risk profile as "fair," its financial risk profile as "aggressive," and its liquidity as "adequate." RailAmerica currently generates lease-adjusted debt to EBITDA of about 3.5x and FFO to total debt is in the mid-20% area. CreditWatch We will resolve the CreditWatch listing based on our review of the pro forma business and financial risk profiles as well as discussions with management on its financial policy, liquidity, and capital structure for the consolidated entity. Related Criteria And Research

-- Full Analysis: RailAmerica Inc., June 29, 2012

-- Credit FAQ: What's Ahead For The Railroad Sector In 2012?, Dec. 28, 2011

-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List CreditWatch Action

To From RailAmerica Inc. Corporate credit rating BB-/Watch Dev/-- BB-/Stable/-- Senior secured BB+/Watch Dev BB+ Recovery rating 1 1 RailAmerica Transportation Corp. Senior secured BB+/Watch Dev BB+ Recovery rating 1 1

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