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
Fitch expects any future acquisitions to be more in line with core waste removal operations, following the company's expected divestitures of over
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
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.
Source: Fitch Ratings
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