All trends remain Stable.
KEY CREDIT RATING CONSIDERATIONS
The credit ratings confirmations and Stable trends reflect the Company's sound operating performance in 2023, combined with Morningstar DBRS' expectations that, although key credit metrics will weaken as the Company uses incremental debt for significant share buybacks, key credit metrics will remain commensurate with the current ratings.
In 2023, revenue declined modestly by 1.6% year over year (YOY) to approximately
CREDIT RATING DRIVERS
Should key credit metrics weaken for a sustained period beyond what Morningstar DBRS deems acceptable for the current rating (i.e., debt-to-EBITDA above 2.5x) as a result of either weaker-than-expected operating performance and/or more aggressive financial management, the credit ratings could be pressured. Furthermore, a sustained period of weaker-than-expected operating performance reflecting a permanent downward shift of the Company's business risk profile would require the Company to maintain stronger credit metrics in order to support the same rating. Although highly unlikely over the near term, any significant improvement of key credit metrics (i.e., debt-to-EBITDA improving toward 1.5x) over a sustained period coupled with management's commitment to maintain key credit metrics at such levels may warrant a positive rating action.
EARNINGS OUTLOOK
Morningstar DBRS expects the Company's earning profile to remain solid, with revenues forecast to grow to above
FINANCIAL OUTLOOK
Strong EBITDA should translate to solid cash flow generation with operating cash flow reaching close to
CREDIT RATING RATIONALE
The credit ratings continue to be underpinned by CN's vast network, diversified product and customer base, industry-leading operating efficiency, traditionally strong cash flow generation, and the broad importance of the sector to the broader economy. The ratings also consider the potential for further strengthening of the business risk profile over the medium term helped by planned
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (
BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of
(B) Weighting of FRA Factors
In the analysis of
(C) Weighting of the BRA and the FRA
In the analysis of
Notes:
All figures are in Canadian dollars unless otherwise noted.
Morningstar DBRS applied the following principal methodologies:
Global Methodology for Rating Companies in the Railway Industry (
Morningstar DBRS Global Corporate Criteria (
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (
Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at https://dbrs.morningstar.com/research/431153.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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