News Column

Fitch: Waste Management, Inc. Divestiture Benefits Profile

July 29, 2014



NEW YORK--(BUSINESS WIRE)-- Waste Management, Inc.'s (WM [BBB/Stable]) long-term operating and credit profile benefits from its Wheelabrator Technologies, Inc. (Wheelabrator) divestiture, according to Fitch Ratings.

Fitch expects the transaction to stabilize top line growth and slightly improve operating margins and cash flow generation, which will help to enhance the operating profile over the long term. Divesting Wheelabrator somewhat removes potential short-term operating volatility from energy prices.

Cash proceeds from the transaction are expected to be approximately $1.85 billion of the $1.94 billion paid by Energy Capital Partners and will be used for a combination of acquisitions, debt reduction, and share repurchases. Debt reduction will be marginal compared to the overall transaction, expected to be between $300 and $500 million. Debt reduction will be focused towards maintaining leverage neutrality following an EBITDA decline from Wheelabrator.

Fitch expects any future acquisitions to be more in line with core waste removal operations, following the company's expected divestitures of over $2.2 billion of non-core operations in 2014.

Tuesday's announced divestiture does not represent a change in the long-term financial policy of WM and Fitch expects the company to continue to maintain a leverage (total debt/EBITDA) target of 3.0x. A more conservative financial policy will continue to be one potential positive rating trigger, which is a key driver in Fitch's near-term perspective on maintaining ratings and outlooks at current levels.

We believe WM was able to obtain a favorable price for the Wheelabrator business given the recent volatile performance and end market outlook. Although there is generally stability in waste processing, the volatility of energy prices provides greater risk in the operating profile of waste-to-energy firms. Fitch estimates the transaction multiple of approximately 9.0x-10.0x EBITDA based on the $1.94 billion divestiture price. While the transaction multiple is higher than other waste removal bolt-ons, it is in line with recent elevated corporate multiples.

The $600 million accelerated share repurchase plan announced alongside WM's 2Q14 earnings is in line with Fitch's expectations for capital deployment. Ongoing capital deployments will be focused around capital expenditures, acquisitions, dividends, and share repurchases.

We note that while the divestiture is positive for the credit, the transaction alone is not material enough for a near-term rating impact and is not expected to change WM's ratings or outlook.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Fitch Ratings

Chad Walker

Associate Director

Corporate Finance

+1-312-368-2056

or

Kellie Geressy-Nilsen

Senior Director

FitchWire

+1-212-908-9123

or

Media Relations

Brian Bertsch, New York, +1-212-908-0549

brian.bertsch@fitchratings.com


Source: Fitch Ratings


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