Aurizon Operations Ltd.

Somewhat mitigating this risk is continued demand for high-quality Australian coal and the presence of a higher proportion of take-or-pay charges (capacity-like charges), reducing the effect on revenue due to variations in haulage volumes. In addition, the business is now also supported by some diversification in its revenues from nonvolume-linked bulk service contracts, including leasing of rolling stock and crew. The stable outlook on AUO reflects its dominant market share in the above-rail coal business and our expectation that management will maintain a reasonably well-capitalized group with a 'bbb+' group credit profile. The outlook also reflects the inherent flexibility available in moderating distribution to the parent and management's target of maintaining FFO to debt above 50% at the AUO level.

...Aurizon Operations Ltd. (AUO)'s established position in the above-rail haulage markets will continue to support its credit quality. However, its narrow product and customer base remain a weakness. With a strong market share in Queensland and presence in New South Wales, AUO hauls over 200 million tons of coal a year. However, after the group's exit from the intermodal business and cessation of two iron ore haulage contracts, the business is highly exposed to coal haulage. Somewhat mitigating this risk is continued demand for high-quality Australian coal and the presence of a higher proportion of take-or-pay charges (capacity-like charges), reducing the effect on revenue due to variations in haulage volumes. In addition, the business is now also supported by some diversification in its revenues from nonvolume-linked bulk service contracts, including leasing of rolling stock and crew. AUO's minimum leverage will provide a buffer to its financial profile. We believe that AUO will increase...

Full Report