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Rating Action:

Moody's confirms Waste Management; Baa3 senior unsecured, outlook stable

14 Oct 2008
Moody's confirms Waste Management; Baa3 senior unsecured, outlook stable

Approximately $8.1 billion of rated debt outstanding

New York, October 14, 2008 -- Moody's Investors Service confirmed all of its debt ratings of Waste Management, Inc. ("WMI"), including the Baa3 senior unsecured rating and changed the outlook to stable. The ratings confirmation followed WMI's October 13, 2008 announcement that it has abandoned the attempted acquisition of Republic Services, Inc. ("RSG", Baa1, on review for possible downgrade) because of the current state of financial markets. The WMI ratings had been on review for downgrade since July 14, 2008, when WMI announced its initial unsolicited offer to acquire RSG.

"The stable outlook reflects Moody's belief that WMI can sustain its operating performance close to current levels notwithstanding that weakening economic conditions would likely further depress waste disposal volumes," said Moody's Analyst Jonathan Root. Disciplined pricing programs and cost containment measures have more than mitigated declining disposal volumes to lead to margin expansion and stronger credit metrics that could be indicative of a higher rating. While WMI's ability to sustain its business profile and financial metrics could support a higher rating over time, Moody's anticipates a more challenging business environment over the near term, which could pressure the recent improvements in credit metrics. This and upcoming significant debt maturities at a time of challenging credit market conditions could constrain WMI's otherwise good liquidity and, at this time, restrains the outlook at stable. Additionally, financial policies have favored returns to shareholders rather than de-levering the balance sheet and Moody's believes this could continue, particularly since there is no longer the prospect of the acquisition of RSG.

The Baa3 senior unsecured rating reflects Waste Management's leading position in the North American solid waste management services sector. The diverse suite of waste management services, broad geographic footprint and focus on return on invested capital help support the generation of earnings and operating cash flows, including during declines in waste streams experienced during troughs in the economic cycle. Free cash flow generation has averaged over $700 million in each of the last three years, although during this period, the company has increased returns to shareholders through share repurchases that have more than outstripped free cash flow. However, Waste Management has funded the majority of these "excess" purchases with the proceeds of asset sales and from the liquidation of investment securities, with only a minor increase in debt. Returns to shareholders, $885 million of near-term debt maturities and the need to replace about $350 million of issued letters-of-credit ("LC") because of the December 2008 maturity of the off-balance sheet Oakmont Asset Trust synthetic LC facility ("Oakmont") balance the Baa3 senior unsecured rating.

The outlook could be changed to positive if WMI is able to sustain its current credit profile notwithstanding expected difficult market conditions and fund the near-term debt maturities from either cash flow or by accessing the capital markets, rather than by relying on its revolver, which would diminish the company's liquidity cushion. Moody's anticipates that availability on the revolver will decline by about $350 million upon the replacement of the Oakmont LC's; however, availability should remain above $400 million as long as WMI does not use the revolver to meet debt maturities. EBIT to Interest being sustained above 4.5 times or Debt to EBITDA being sustained below 2.5 times could also lead to a positive outlook. The outlook could be changed to negative if WMI was to meaningfully increase debt because of the acceleration of share purchases or due to a large acquisition. The decline in free cash flow towards 3.0% of Debt, the decline in EBIT to Interest to about 3.5 times or Debt to EBITDA that approaches about 3.3 times could also result in an outlook change to negative. The inability to sustain price increases at levels that offset potentially lower collection or disposal volumes could also place pressure on the Baa3 rating.

Outlook Actions:

..Issuer: Waste Management Holdings, Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Waste Management, Inc.

....Outlook, Changed To Stable From Rating Under Review

Confirmations:

..Issuer: California Pollution Control Financing Auth.

....Revenue Bonds, Confirmed at Baa3

..Issuer: Michigan Strategic Fund

....Senior Unsecured Revenue Bonds, Confirmed at Baa3

..Issuer: Oakmont Asset Trust

....Senior Unsecured Regular Bond/Debenture, Confirmed at (P)Baa3

..Issuer: Waste Management Holdings, Inc.

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa3

..Issuer: Waste Management, Inc.

....Issuer Rating, Confirmed at Baa3

....Senior Unsecured Bank Credit Facility, Confirmed at Baa3

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa3

..Issuer: Westchester County I.D.A., NY

....Senior Unsecured Revenue Bonds, Confirmed at Baa3

Waste Management, Inc., based in Houston, Texas, is the largest provider of comprehensive waste management services in North America.

New York
Michael J. Mulvaney
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Jonathan Root
Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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