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Related Issuers
Rating Action:

Moody's assigns B3 rating to GFL's new senior unsecured notes

03 Aug 2021

$400 million of new debt rated

Toronto, August 03, 2021 -- Moody's Investors Service ("Moody's") assigned a B3 rating to GFL Environmental Inc.'s ("GFL") proposed new $400 million senior unsecured notes due in 2029. The B1 corporate family rating, B1-PD probability of default rating, Ba3 ratings on GFL's existing term loan and senior secured notes and B3 ratings on its existing senior unsecured notes remain unchanged. The Speculative-Grade Liquidity Rating also remains unchanged at SGL-2. The outlook remains stable.

The proceeds from the new senior unsecured notes will be used to partially fund the acquisition of Terrapure Environmental Ltd., which GFL committed to acquire in March 2021. The acquisition is expected to close in October and is valued at approximately C$900 million. GFL will fund the acquisitions with the net proceeds from the new issuance, cash on hand (C$200 million) and amounts drawn on its revolving credit facility. The transaction is expected to increase GFL's pro forma leverage for FY2021E from 4.8x to 4.9x.

Assignments:

..Issuer: GFL Environmental Inc.

....Senior Unsecured Notes, Assigned B3 (LGD5)

RATINGS RATIONALE

GFL's B1 CFR is constrained by: 1) its history of aggressive debt-financed acquisition growth strategy; 2) Moody's expectation that leverage will remain above 4x in the next 12 to 18 months (about 4.9x pro forma for new issuance and Terrapure acquisition); 3) the short time frame between acquisitions which increases the potential for integration risks and creates opacity of organic growth; and 4) GFL's majority ownership by private equity firms, which may continue to hinder deleveraging. However, GFL benefits from: 1) the company's diversified business model; 2) high recurring revenue supported by long term contracts; 3) its good market position in the stable Canadian and US non-hazardous waste industry; 4) EBITDA margins that compare favorably with those of its investment grade rated industry peers; and 5) good liquidity.

The stable outlook reflects Moody's view that GFL will sustain leverage in the high 4x range and continue to maintain its stable margins and good liquidity in the next 12 to 18 months.

GFL has good liquidity (SGL-2). Sources are approximately C$650 million compared to C$60 million ($46 million) of mandatory payments payable under the amortizing notes of the tangible equity units over the next 12 months. GFL will have limited cash after the acquisition of Terrapure, approximately C$250 million of availability under its C$628 million and $40 million revolving credit facilities, and Moody's expected free cash flow of about C$400 million over the next 12 months to June 2022. GFL's revolver is subject to a net leverage covenant, which Moody's expects will have at least a 40% cushion over the next four quarters. GFL has limited flexibility to generate liquidity from asset sales as its assets are encumbered.

Environmental risks considered material are the various regulations and requirements that GFL is subjected to for the collection, treatment and disposal of waste. GFL has a long track record of adhering to the requirements for the proper handling of the waste materials encountered.

The governance considerations we make in GFL's credit profile include the majority ownership by private equity firms as well as its history of debt-financed acquisitions and aggressive financial policies, which may be reversed after the completion of the IPO earlier this year. We also considered GFL's track record of successfully integrating its acquisitions for the expansion of its business as well as the management team's experience in the amalgamation of the businesses.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if GFL demonstrates consistent and visible organic revenue growth, maintains good liquidity and sustains adjusted debt/EBITDA below 4.0x (4.9x pro forma 2022E pro forma for refinancing and acquisition). The ratings could be downgraded if liquidity weakens, possibly caused by negative free cash flow, if there is a material and sustained decline in margins due to challenges integrating acquisitions or if adjusted Debt/EBITDA is sustained above 5.0x (4.9x pro forma 2022E).

The Ba3 ratings on the existing senior secured notes and term loan are one notch above the CFR due to the senior debt's first priority access to substantially all of the company's assets as well as loss absorption cushion provided by the senior unsecured notes. The B3 ratings on the new and existing senior unsecured notes are two notches below the CFR due to the senior unsecured notes' junior position in the debt capital structure.

The principal methodology used in these ratings was Environmental Services and Waste Management Companies published in April 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113573. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

GFL Environmental Inc., headquartered in Toronto, provides solid waste and liquid waste collection, treatment and disposal solutions and soil remediation services to municipal, industrial and commercial customers in Canada and the US. Pro forma for acquisitions, annual revenue is approximately C$5.5 billion. GFL is publicly traded on the Toronto Stock Exchange and New York Stock Exchange.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Louis Ko
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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