Tokyo, December 11, 2012 -- Moody's Japan K.K. has assigned its Aa3 ratings to Central Japan Railway Company's (JR Central) bonds. The rating outlook is stable.
This is a takedown from the company's JPY700 billion domestic shelf registration (effective October 25, 2011), which is rated (P)Aa3.
The specific bond issues rated are:
o JPY 25 billion Series 61, Senior Unsecured Bond due 2014.
The rating reflects JR Central's solid cash flow generation mainly from its Shinkansen super express train operation, the company's importance in Japan's transportation policy, the favorable regulatory environment for the railroad operation, and JR Central's substantial debt payment requirements.
JR Central's core business is the Tokaido Shinkansen services, which account for about 70% of its total consolidated sales. The Tokaido Shinkansen is the core of Japan's passenger transportation system, connecting the country's three largest economic zones. Backed by their competitive position and solid traffic demand, as well as the company's efforts to heighten service quality, these services exhibit favorable performance. Moody's believes that the operation of the Tokaido Shinkansen is highly stable, and that its competitiveness against other forms of transportation is continuing to improve due to the company's ongoing efforts.
Approximately 40% of JR Central's total debt comprises its deferred payment obligations to Japan Railway Construction, Transport and Technology Agency (JRTT, rated Aa3 by Moody's), an Independent Administrative Corporation.
The debt is amortized over the long term with moderate annual payments. With its strong free cash flow, the company has promoted early repayment of the JRTT debt and has reduced it significantly, from JPY 3.48 trillion at end-March 2002 to about JPY 1.14 trillion at end-March 2012. Moody's believes that such early repayment reduces future interest burdens and contributes to further profitability improvement.
Given the stagnant economic environment in Japan, an upgrade of its rating is not highly likely in the near future. But, upward pressure may emerge if it recovers an appreciable pace for improvements to its financial profile; for instance, if adjusted Debt/EBITDA improves below 4.0x, and adjusted operating profit margin improves over 30%, while debt falls on an ongoing basis.
Downward rating pressure may occur if debt reduction slows due to further pressure on cash flows or significant adverse changes in the company's conservative financial policy. A negative rating discussion on JR Central's standalone credit profile would be initiated with adjusted Debt/EBITDA over 5.0x, or adjusted operating profit margin below 20%.
The principal methodology used in this rating was Moody's Global Passenger Railway Companies Rating Methodology published on September 30, 2010, and available on www.moodys.co.jp.
Central Japan Railway Company, headquartered in Nagoya, is a railroad operator, with its main franchise comprising the Tokaido Shinkansen, and conventional lines in the Tokai area.
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Kazusada Hirose VP - Senior Credit Officer Corporate Finance Group Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Richard C Bittenbender Associate Managing Director Corporate Finance Group JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Releasing Office: Moody's Japan K.K. Atago Green Hills Mori Tower 20fl 2-5-1 Atago, Minato-ku Tokyo 105-6220 Japan JOURNALISTS: (03) 5408-4110 SUBSCRIBERS: (03) 5408-4100 Copyright 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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