S&P Places CN, Illinois Central On CreditWatchNeg.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 2/6/98-- Standard & Poor's today placed its ratings of Canadian National Railway Co. (CN) and its ratings of Illinois Central Railroad Co. (IC) on CreditWatch with negative implications (see list below). The action followed CN's announcement

that it was in discussions to acquire IC for cash and stock totaling around $2.3 billion, most of which is likely to be debt financed. If an agreement is reached and 75% of the consideration consists of a cash payment, then the resulting increase in debt (about $1.7 billion) would represent a more than doubling of CN's existing debt of about $C1.7 billion. Additionally, IC has about $600 million of existing debt. Following any agreement, a timetable for regulatory approval would be established by the U.S. Surface Transportation Board (STB). An STB decision would be unlikely in 1998.

CN is Canada's largest railway system, with 1997 revenues of C$4.3 billion. It operates a trans-Canadian network that also serves the U.S. The company has greatly improved operating efficiency following the sale of all common equity by the Canadian government to the public in late 1995. While the 1995 privatization removed implied government support, the privatization permitted the company to lower operating costs, and improve operating efficiency by expediting the transfer of noncore lines to short line operators or facilitating the abandonment of economically nonviable lines. The 1997 operating ratio (operating expenses as a percentage of operating revenues) of 78.6% improved from 82.2% in 1996.

Chicago-based IC, a smaller (1997 revenues $700 million), but highly profitable U.S. railroad, operates a 2,700-mile main-line north-south system from Chicago to New Orleans. While its system is subject to barge competition in its key commodities of grain and coal, IC's 1997 operating ratio of 62.3% is one of the best in the industry.

The combination of CN and IC would connect a Canadian east-west system to a U.S. north-south system, providing some incremental service and revenue opportunities. However consolidated funds from operations to debt would likely decline from CN's 1996 28% level, prior to any offsetting operating improvements. Ratings could be lowered if the transaction proceeds as discussed and Standard & Poor's concludes that the consolidated financial profile of the combined companies was materially weakened.-CreditWire

RATINGS PLACED ON CREDITWATCH NEGATIVE Canadian National Railway Co. Corporate credit rating BBB Senior unsecured debt BBB Equipment trust certificates A-Illinois Central Railroad Co. Long-term corporate credit rating BBB Short-term corporate credit rating A-2 Senior unsecured debt BBB Commercial paper A-2

CONTACT: Robert Schulz, CFA, 212/208-1979

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