MOODY'S LOWERS LONG-TERM DEBT RATINGS OF WASTE MANAGEMENT (SENIOR TO Baa1); LONG AND SHORT-TERM RATINGS ON REVIEW FOR FURTHER DOWNGRADE
New York, 10-30-97 -- Moody's Investors Service lowered the senior debt rating of Waste Management, Inc. (formerly, WMX Technologies, Inc.) to Baa1 from A3 and its subordinated debt rating to Baa2 from Baa1. The company's long-term debt ratings remain on review for further downgrade. In addition, Waste Management's Prime-2 rating for the issuance of commercial paper was placed on review for potential downgrade. The ratings actions reflect Waste Management's weakened operating performance, which has eroded financial and debt-protection measurements following substantial share repurchases in the first half of 1997. Morever, the company's announcement today of the resignation of key members of senior management prolong the uncertainty as to whether or not Waste Management can position itself to successfully respond to the competitive challenges of the solid waste industry.
The ratings lowered, which also remain on review for potential downgrade, include:
Waste Management, Inc. - senior notes, step-up notes, medium-term notes and debentures to Baa1 from A3; convertible subordinated notes and Liquid Yield Option Notes (LYONS) to Baa2 from Baa1; counterparty rating to Baa1 from A3.
Chemical Waste Management, Inc. - Liquid Yield Option Notes (LYONS) to Baa2 from Baa1.
Rust Industrial Cleaning Services - subordinated notes guaranteed by Waste Management to Baa1 from A3.
OHM Corporation - $62 million senior secured revolving bank facility guaranteed by Waste Management to Baa1 from A3.
County of Westchester Industrial Development Agency (Westchester Resco Company Project) - Resource Recovery Equity Bonds, which are guaranteed by Wheelabrator Technologies Inc., to Baa1 from A3.
The rating placed under review for potential downgrade is:
Waste Management, Inc. - Prime-2 rating for the issuance of commercial paper.
Moody's said that Waste Management continues to face a deterioration in its operating performance due to extremely competitive conditions in the solid waste industry and a burdensome cost structure, which the company has taken steps to address by implementing cost controls, by exiting non-core businesses and by focusing resources on its most important geographic markets and profitable customers. While the company has generated excess cash flow to repay debt, a recently executed share repurchase program primarily funded by the proceeds from asset sales has substantially reduced the company's financial flexibility. The strategic review currently underway to respond to these operating and financial concerns will continue under the leadership of an interim chief executive officer. Nonetheless, there is some uncertainty related to the timely implementation of potential adjustments to Waste Management's operating strategy and organizational structure that would strengthen earnings and financial strength.
In its review, Moody's will focus on the new senior management team that is installed at Waste Management and the potential changes in business and financial strategies that may result. The review will also assess the impact that the uncertainty related to the company's management team has on the competitive position of the company in the interim. While Waste Management remains profitable and continues to generate substantial cash flow, Moody's will also consider the extent to which excess cash flow is diverted from debt repayment to share repurchases, further weakening the company's capital structure.
Waste Management, Inc., headquartered in Oak Brook, IL, is the world's largest provider of environmental services.
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