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Rating Action:

CORRECTION TO TEXT: MOODY'S INVESTORS SERVICE ASSIGNS Baa3 TO PROPOSED SR. UNSECURED NOTES DUE 2014 OF WASTE MANAGEMENT, INC. CONFIRMS EXISTING RATINGS AND AFFIRMS OUTLOOK. ($150 Million Issue Of 7.65% Sr Unsecd Debentures Due 2011 Rated Baa3; not Baa)

02 Mar 2004
CORRECTION TO TEXT: MOODY'S INVESTORS SERVICE ASSIGNS Baa3 TO PROPOSED SR. UNSECURED NOTES DUE 2014 OF WASTE MANAGEMENT, INC. CONFIRMS EXISTING RATINGS AND AFFIRMS OUTLOOK. ($150 Million Issue Of 7.65% Sr Unsecd Debentures Due 2011 Rated Baa3; not Baa)

Approximately $8.5 Billion of debt affected

New York, March 02, 2004 -- Moody's Investors Service assigned a Baa3 to Waste Management, Inc.'s ("WM") proposed issuance of $350 million of senior unsecured notes due 2014. At the same time, Moody's confirmed the existing ratings and affirmed the stable outlook.

The proposed notes will be issued under an indenture dated September 10, 1997. The expected proceeds are to be used to retire $150 million 8% senior notes due 2004 and $200 million 6.5% senior notes due 2004. Upon the refunding of these issues, these respective ratings will be withdrawn.

The ratings reflect the company's leading market position in the domestic solid waste industry with an extensive infrastructure of collection operations, transfer stations, and landfills. The ratings also incorporate the highly competitive nature of the industry, WM's modest tangible equity due to significant goodwill ($5.2 billion), which comprises 27% of total assets, modest retained earnings and share repurchases; moderate lease adjusted leverage of 3.3 times debt -- plus eight times rent -- to interest plus the interest component of rents, and moderate interest protection measurements.

The rating outlook is stable. Moody's believes that WM's fiscal policy, liquidity profile and anticipated cost management should allow the company to withstand the current economic stress without a negative movement in the rating. Moody's remains concerned by the slimming cushion for the bank's net worth covenant test that could largely be eliminated by next year if the company maintains the same level of share repurchases. Moody's will continue to focus on the company's weaker operating profits and slightly higher leverage.

The company reported a significant 440 basis point year over year increase in cost of goods sold for fiscal 2003, which was primarily related to higher insurance costs and adverse commodity prices. While the company was able to offset some deterioration in the gross margin with selective price improvements and cost containment initiatives, the very competitive pricing environment may still limit revenue growth and resulting profit improvement in the near term. The 140 basis point decline in the EBIT margin to 13.2% at year-end 2003 led to a weaker than expected EBIT return on average assets of 7.6% for fiscal 2003 versus 8.2% in the previous year.

Leverage, as measured by debt to free cash flow (cash from operations less capex less dividends), increased to 11.8 times in fiscal 2003 from 9.6 times the previous year and 8.1 times in 2001. However, a lower average cost of borrowing resulted in flat interest protection measurements. Interest coverage, measured as EBIT to interest expense remained at about 3.5 times. The lower fixed charge coverage of 1.6 times at December 31, 2003 versus 2.2 times in the prior year primarily reflects the significantly higher current maturities for 2004 than in the previous year, which are being addressed by this financing..

The management of fiscal policy is expected to remain prudent. The company's fiscal 2003 free cash flow (defined as cash from operations less capex less dividends) to revenues declined to 6.2% versus 7.7% the previous year. The company responded by reducing share repurchases by 43% to $550 million for fiscal 2003.

There is no notching of the rated senior debt instruments, which are all unsecured. Moody's notes that debt at Waste Management, Inc. and Waste Management Holdings, Inc. is neutrally guaranteed. The company's operations are conducted through non-guarantor operating subsidiaries, which constitute substantially all of the operating assets of the consolidated entity. These subsidiaries have over $4 billion in environmental, tax and other liabilities that could present structural subordination issues for bank and public debt. The Ba1 rating on the convertible subordinated notes reflects the contractual subordination of the notes to the senior debt of the company.

The affected ratings include:

Waste Management, Inc. -

The $1.75 billion guaranteed senior unsecured revolving credit maturing in 2006 rated Baa3;

The $150 million issue of 7.125% senior unsecured bonds due 2017 rated Baa3;

The $250 million issue of 7.375% guaranteed senior unsecured global bonds due 2029 rated Baa3;

The $300 million issue of 7% senior unsecured notes due 2004 rated Baa3;

The $300 million issue of 7.125% senior unsecured notes due 2007 rated Baa3;

The $400 million issue of 6.5% senior unsecured notes due 2008 rated Baa3;

The $500 million issue of 6.875% senior unsecured global notes due 2009 rated Baa3;

The $600 million issue of 7.375% senior unsecured notes due 2010 rated Baa3;

The $400 million issue of 6.375% guaranteed senior notes due 2012 rated Baa3;

The $600 million issue of 7% senior unsecured bonds due 2028 rated Baa3;

The $500 million issue of 7.75% senior unsecured global bonds due 2032 rated Baa3.

The Ba2 senior unsecured issuer rating is Baa3.

Waste Management Holdings, Inc. -

The $100 million issue of 7% senior unsecured notes due 2005 rated Baa3;

The $150 million issue of 7.65% senior unsecured debentures due 2011 rated Baa3;

The $150 million issue of 8% senior unsecured step-up notes due 2004 rated Baa3;

The $250 million issue of 8.75% senior unsecured debentures due 2018 rated Baa3;

The $3 million issue of 6.65% senior unsecured notes due 2005 rated Baa3;

The $300 million issue of 7% senior unsecured notes due 2006 rated Baa3;

The $450 million issue of 7.1% senior unsecured notes bonds due 2026 rated Baa3;

The $31 million issue of 2% convertible subordinated notes due 2005 rated Ba1;

The $91.8 million of CA, NY and MI Industrial Revenue Bonds rated Baa3.

Waste Management, Inc., headquartered in Houston, TX, is a leader in providing environmental waste management services. The company reported sales of $11.6 billion for fiscal 2003 and total debt of $$8.5 billion at December 2003.

New York
Patrick Finnegan
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Catherine Guinee
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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