Fitch Rates Waste Management's Proposed $350MM Note Offering 'BBB'

CHICAGO--()--Fitch Ratings has assigned a rating of 'BBB' to Waste Management Inc.'s (WM) proposed senior unsecured note offering. The $350 million in notes will mature in 2024 with the proceeds used to pay down outstanding revolver borrowings. WM borrowed on its revolver to fund the redemption of $350 million in 5% notes that matured in March 2014. WM's Issuer Default Rating (IDR) is currently 'BBB'. The Rating Outlook is Stable.

Fitch's ratings on WM apply to a $2.25 billion unsecured credit facility and to roughly $6 billion of senior unsecured notes. A full rating list is included at the end of the release.

The proposed notes will be issued under an existing indenture dated Sept. 1997. No changes have been made to the agreement. The notes will be guaranteed by Waste Management Holdings, Inc. and rank pari passu with all other outstanding senior unsecured notes. The notes will be a leverage neutral transaction following the revolver repayment. Debt/EBITDA at March 31, 2014, was 2.9x as calculated by Fitch, slightly lower than 3.0x at year end 2013. Further modest incremental debt issuances would be within Fitch's current rating expectations, however any material leveraging transaction could cause a review for negative rating action. Fitch expects WM to maintain leverage around 3.0x in the near term.

KEY RATING DRIVERS

WM's ratings are supported by the stability of the waste services industry, WM's leading market position, consistent operating performance, and strong free cash flow (FCF). WM's financial profile remains consistent with its 'BBB' rating. Debt/EBITDA has remained substantially unchanged in recent history. Financial flexibility is expected to remain solid, and is supported by an adequate cash balance, sizeable revolver capacity, expectations for increasing FCF, and a well-staggered debt maturity profile.

Operating results continue to improve. First-quarter 2014 results came in better than Fitch originally expected despite operational hurdles seen throughout the industry due to harsh winter weather. Volume remains weak, creating a revenue headwind of 1.8% in the first quarter, but this was offset by strong average yield growth of 2.6%. Total revenue was up by 1.8% in the quarter. WM's pricing strategy will sustain the tradeoff of volume and yield, providing increased focus on profitability of contracts and benefiting EBITDA margins in the long term.

RATING SENSITIVITIES

The company could be reviewed for a positive action in the event that leverage was to decline to around 2.5x or below. This would likely entail a change in management strategy and is not expected at this time. A positive action could also be considered if cost reduction initiatives, or a significant improvement in the economic environment were to lead to a notable improvement in operating margins and FCF.

Given the stability of the industry, a negative rating action would not be expected to stem from an economic downturn. A future negative rating action would likely be triggered by an increase in leverage either to fund share repurchases or a sizeable acquisition. Neither scenario is anticipated at this time.

Fitch currently rates WM as follows:

--IDR 'BBB',

--Senior unsecured credit facility 'BBB',

--Senior unsecured debt 'BBB'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (Aug. 5, 2013);

--'Evaluating Corporate Governance' (Dec. 12, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Evaluating Corporate Governance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=694649

Additional Disclosure

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Chad Walker, +1-312-368-2056
Associate Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Stephen Brown, +1-312-368-3139
Senior Director
or
Committee Chairperson
Michael Zbinovec, +1-312-368-3164
Senior Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Chad Walker, +1-312-368-2056
Associate Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Stephen Brown, +1-312-368-3139
Senior Director
or
Committee Chairperson
Michael Zbinovec, +1-312-368-3164
Senior Director
or
Media Relations
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com