Credit ratings agency says 2 railroads might be downgraded if proposed merger goes forward

OMAHA, Neb. – Rating agency Moody’s says Canadian Pacific and Norfolk Southern could face credit downgrades if the two railroads move forward with a proposed merger.

Moody’s said Monday that it hasn’t taking any action on the railroads’ ratings yet because it’s not clear Norfolk Southern will agree to Canadian Pacific’s buyout offer.

But as the probability of a merger increases, Moody’s says a negative rating action is likely.

That’s because Canadian Pacific (TSX:CP) would have to borrow significantly more to finance the roughly $27-billion deal, and past railroad mergers have had integration problems.

So far Norfolk Southern has rejected Canadian Pacific’s offers to buy the railroad, but it hasn’t responded to CP’s latest bid.