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Rating Action:

Moody's changes Tervita's outlook to negative

Global Credit Research - 24 Jan 2013

Approximately $2.7 billion of rated debt affected

Toronto, January 24, 2013 -- Moody's Investors Service affirmed all ratings of Tervita Corporation (B3 corporate family (CFR), B3-PD probability of default, B1 senior secured, Caa2 senior unsecured, Caa2 senior subordinate and SGL-3 speculative grade liquidity rating) and changed the company's outlook to negative from stable.

"We are concerned that the company's EBITDA has declined over the past few quarters despite anticipated earnings contributions from the significant growth capital spent in 2011 and 2012," said Darren Kirk, a Vice President and Senior Credit Officer with Moody's. "The negative outlook signals that we will lower Tervita's rating if we fail to gain confidence that the company will improve its earnings and reduce its significant leverage through 2013."

RATINGS RATIONALE

Tervita's B3 CFR primarily reflects the company's very high leverage (7.5x adjusted Debt/ EBITDA) which Moody's expects will increase towards 8x through 2013 as stable industry demand inhibits meaningful earnings growth and the company funds up to $100 million in negative free cash flow with revolver drawings. The ratings also incorporate Moody's view that Tervita's execution has been weak as its earnings growth has been limited over the past couple of years despite generally favorable market conditions and after a significant amount of debt-funded growth capital has been spent. Moody's views Tervita's business profile as a positive to the rating. The company is one of the largest providers of waste management services to the Canadian oil & gas sector, long-term industry fundamentals are favorable, barriers to entry are high, and Tervita has a diverse list of blue chip customers. Tervita nevertheless is exposed to the cyclical land drilling business with a concentration in western Canada.

The negative outlook reflects Moody's expectation that Tervita's leverage will remain elevated for its B3 rating through 2013 and that the company's rating will be lowered if this metric fails to improve. The rating could be upgraded if debt to EBITDA trends towards 5.5x and the company generates sustainable positive free cash flow. The rating could be downgraded if it appears likely debt to EBITDA will remain above 7x or if the company's liquidity becomes strained.

The principal methodology used in rating Tervita Corporation was the Global Oilfield Services Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

Darren M. Kirk
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's changes Tervita's outlook to negative
No Related Data.

 

© 2014 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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