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14 Jun 2005
MOODY'S ASSIGNS B2 RATING TO PROPOSED $215MM SENIOR SECURED CREDIT FACILITY OF ENVIROSOLUTIONS REAL PROPERTY HOLDINGS; OUTLOOK STABLE
Approximately $215 Million of Rated Debt Securities Affected
New York, June 14, 2005 -- Moody's Investors Service assigned a B2 rating to the proposed $215
million senior secured credit facility of EnviroSolutions Real Property
Holdings, Inc. and its co-borrowers, each of
which is a wholly owned subsidiary of EnviroSolutions Holdings,
Inc. (EnviroSolutions). Moody's also assigned a senior
implied rating of B2 and a stable outlook.
The ratings reflect the short operating history of the company and its
growth through a series of acquisitions; the small size of the company
relative to larger rated industry competitors; revenue concentration
from a limited number of properties and geographic regions; significant
leverage and; material projected capital expenditure needs related
to the development of recently acquired landfills and the implementation
of its rail strategy.
The ratings also reflect leading positions in key local markets that have
attractive demographics and limited landfill capacity; good projected
liquidity upon the closing of the proposed credit facility and; expected
improvements in cash flows from internalization of waste to landfills
Moody's assigned the following ratings:
$40 million senior secured revolving credit facility due 2011,
$175 million senior secured term loan B facility due 2012,
Senior implied rating, rated B2;
The ratings outlook is stable.
The ratings are subject to the review of the final executed documents.
Proceeds from the $175 million term loan B and $35 million
of 12.5% senior subordinated notes are expected to be used
to repay existing senior secured indebtedness, pay fees and expenses
and provide about $98 million of cash to fund the company's
growth strategy. The revolver is expected to be undrawn at closing.
The company was formed in 2003 and since then has completed a series of
acquisitions in the waste management industry. These acquired operations
could present integration challenges and will have a short operating history
under current management. For the year ended December 31,
2004, pro forma for acquisitions completed through May 2005,
almost all of the company's revenues and cash flow are derived from
operations in Northern Virginia, Baltimore, Maryland and the
New York/New Jersey Metro area. The company's assets in these
geographic regions include one construction and demolition (C&D) landfill
(Lorton) and two transfer stations and regional hauling and collection
operations. The Lorton landfill in Virginia, which generated
about half of pro forma EBITDA, is exposed to the cyclical nature
of residential and commercial construction in the region.
EnviroSolutions is a relatively small player compared to its larger rated
industry competitors with pro forma revenues for the year ended December
31, 2004 of about $150 million. Pro forma debt to
revenues at December 31, 2004 would have been about 1.4 times.
However, the company benefits from a leading market position for
many of its key assets. The company's Potomac Disposal Services
is the second largest hauling operation in Northern Virginia; Lorton
is the largest C&D landfill in Virginia; and Solid Waste Transfer
(SWTR) is the largest transfer station in New Jersey. These geographic
regions are attractive due to strong growth, dense population,
a lack of new disposal options and high tipping fees.
EnviroSolutions recently acquired a landfill in Kentucky (Big Run) and
is constructing a greenfield landfill in West Virginia (Copper Ridge).
The Big Run landfill is open for business and accepting a limited amount
of waste. The company has filed a notice of intent to expand the
landfill and is awaiting a state technical review. The Copper Ridge
landfill is not yet open for business and the company is awaiting final
approval for its expansion plan. The company expects to spend about
$35 million in capital expenditures over the next six months and
$22 million in 2006, with a large portion related to its
expansion plans at Big Run and Copper Ridge. Payments of deferred
purchase price, primarily related to Big Run and Copper Ridge,
are expected to be about $23 million in the next six months and
$46 million in 2006. Upon completion of the expansion and
receipt of final approval, the company intends to internalize waste
collected at SWTR in New Jersey to Big Run and Copper Ridge using rail
transportation. Company management expects the expansion and internalization
strategy at Big Run and Copper Ridge to generate significant improvements
in cash flows beginning in 2006. The ratings give limited benefit
to this expansion strategy due to uncertainty regarding the timing of
the expansion approval process, the economics of the rail strategy
and the achievability of projected volume forecasts at Copper Ridge and
The stable ratings outlook anticipates the use of cash on hand and cash
flow from operations to fund expansion capital expenditures and deferred
purchase price payments related to acquisitions. Such expenditures
are expected to aggregate over $120 million during the next eighteen
months. The revolving credit facility is not expected to be needed
to fund these expenditures. Moody's expects modest revenue
and cash flow growth from the company's established waste management
operations and a gradual cash flow benefit as the company implements its
internalization strategy at Big Run and Copper Ridge in 2006.
The ratings could be upgraded if the company achieves volume and profitability
forecasts related to Big Run and Copper Ridge in 2006, such that
debt to EBITDA levels decline to below 4 times and sustainable free cash
flow from operations to total debt exceeds 8%.
The ratings could be downgraded if pricing and volume trends deteriorate
in the company's major markets, capital expenditure requirements
significantly exceed expectations or the company's expansion plans
at Copper Ridge and Big Run are not approved.
The proposed senior secured credit facility is guaranteed by EnviroSolutions
and all its direct and indirect subsidiaries other than the co-borrowers.
The B2 rating assigned to the proposed senior credit facility reflects
the first priority security interest in substantially all of the real
estate owned by the co-borrowers and guarantors, all permits
related to any landfills currently owned by the co-borrowers and
any other landfill acquired by the co-borrowers in the future,
and substantially all the receivables of the co-borrowers and guarantors.
Debt to EBITDA for the twelve month period ended March 31, 2005,
on a pro forma basis for acquisitions consummated through May 31,
2005 and the proposed credit facility, was about 6 times and is
expected to decline to about 5 times by December 31, 2006.
Free cash flow for fiscal 2005 is expected to be negative because of significant
capital expenditure requirements and is expected to be about breakeven
EnviroSolutions Holdings, Inc. is an integrated solid waste
management company with leading local market positions in the Northeastern
and Mid-Atlantic United States. Revenue for the year ended
December 31, 2004 was about $66 million.
Corporate Finance Group
Moody's Investors Service
Lenny J. Ajzenman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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