THE VIRGINIAN-PILOT  
              Copyright (c) 1997, Landmark Communications, Inc.

DATE: Wednesday, February 5, 1997           TAG: 9702050481
SECTION: BUSINESS                PAGE: D1   EDITION: FINAL  
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER 
                                            LENGTH:   67 lines

CORRECTION/CLARIFICATION: ***************************************************************** Correction If Norfolk Southern Corp. is able to buy Conrail Inc., Standard & Poor's said that ``the current $10 billion level of Norfolk Southern's debt financed bid increases the chance of a noninvestment grade rating for a combined Norfolk Southern-Conrail entity.'' In a Feb. 5 story about Moody's Investor Service and S&P downgrading Norfolk Southern's long-term debt, the likelihood of such a rating was misrepresented. The former grade of Norfolk Southern's debt also was not ``top'' as the story indicated, but the debt was graded double-A, or just under the top rating. It still maintains the highest debt rating in the railroad industry. Correction published , Friday, February 7, 1997, Business section, p.D3 ***************************************************************** NORFOLK SOUTHERN LOSES TOP DEBT RATING A LOWER MOODY'S RATING WILL AFFECT NEW LONG-TERM DEBT.

Two of the nation's top debt-rating agencies have waved a yellow flag in the race for Conrail Inc.

Norfolk Southern Corp. lost its vaunted top debt rating from Moody's Investors Service on Tuesday as the agency reviewed the potential impact of the railroad's $10.3 billion bid for Conrail. Norfolk Southern's competitor, CSX Corp., was also knocked by Moody's.

Moody's action follows a move Friday by Standard & Poor's that lowered the rating on $1.2 billion of Norfolk Southern's long-term debt slightly to double-A-minus from double-A. Moody's rated Norfolk Southern's debt A1, down from Aaa3.

``We still, even with these downgrades, have the highest credit ratings of any major railroad in the U.S.,'' said Henry C. Wolf, Norfolk Southern's chief financial officer.

Norfolk Southern wants to woo Philadelphia-based Conrail away from CSX with its rich offer.

Moody's downgraded the debt of Richmond-based CSX, which has agreed to merge with Conrail in a deal worth $9.5 billion.

Moody's said the competing bids for Conrail could weaken either company. While just slight reductions, the new debt ratings would increase the interest rates on new long-term borrowings by the companies.

``Although a significant amount of uncertainty surrounds the ultimate outcome of the current struggle . . . the bidding war underscores the heightened long-term risks related to increased competitive pressure and financial leverage facing both companies,'' Moody's said in a statement.

Norfolk Southern carefully cultivated its top debt rating for years, Wolf said.

``We were keeping our powder dry for a number of years in case we had the opportunity to buy Conrail,'' Wolf said.

Indeed, Norfolk Southern likely faces further debt downgrades if it succeeds in buying Conrail. S&P said that if Norfolk Southern borrows $10.3 billion to buy Conrail, it will likely give the company's debt a ``noninvestment grade rating,'' commonly known as a junk rating.

Both S&P and Moody's said the recent moves come on the expectation that Norfolk Southern will borrow nearly $1 billion to buy a 9.9 percent stake in Conrail.

The offer for those shares closed Tuesday, and Norfolk Southern should complete the transaction in the next week, Wolf said.