New York, May 07, 2018 -- Moody's Investors Service ("Moody's") upgraded the senior unsecured ratings
of Republic Services, Inc. (Republic) and its subsidiary,
Browning-Ferris Industries, LLC to Baa2. The outlook
is stable.
RATINGS RATIONALE
The Baa2 rating reflects Moody's expectation that Republic will
improve upon its steady performance over the past few years as the EBITDA
margin climbs toward 30% and free cash flow continues at all-time
high levels (anticipating over $500 million over the next 18 months).
Continued focus on its core strengths - good pricing discipline
and cost controls and strong customer service - have helped Republic
capitalize on favorable key industry drivers. The company maintains
a stable revenue base characterized by steady organic growth (approximately
3% a year) supplemented with largely tuck-in acquisitions.
For 2018, Moody's expects Republic to generate solid margin expansion
with debt-to-EBITDA and free cash flow-to-debt
consistent or slightly higher than 2017 levels. Nonetheless,
liquidity is weaker compared to similarly-rated companies because
of the relatively low cash balance and reliance on remarketing over $1
billion of tax-exempt financings every quarter, though the
company manages this risk with availability under its $2.25
billion revolving credit facilities.
The stable rating outlook reflects Moody's expectations of steady top-line
and EBITDA growth over the next 12-18 months driven by further
yield expansion, the continuation of good cost management and accretive
tuck-in acquisitions. Moody's expects Republic to maintain
its positive pricing momentum in the non-restricted pricing contract
portion of its revenue stream. Moody's also expects debt-to-EBITDA
to remain in the 3x range and for the company to fund/structure future
acquisitions and/or share repurchases commensurate with mid-Baa
rating expectations. Leverage is modestly elevated for the rating
level, however the essential services aspect of the business and
predictability of cash flows helps mitigate concerns with the higher level.
The rating could be upgraded if the EBITDA margin exceeds 30% or
if free cash flow-to-debt accelerated towards 10%
due to progress in transitioning restricted-pricing customers to
more appropriate, non-CPI linked contracts or a rebound in
commodity prices that would significantly boost recycling earnings.
Additionally, debt-to-EBITDA sustainably in the high-2x
range and/or funds from operations-to-debt in excess of
30% could result in positive rating action. Ratings could
be downgraded if Moody's expects debt-to-EBITDA to remain
meaningfully above 3.25x for an extended period of time,
funds from operations-to-debt trends toward 20% or
sustained margin erosion.
Moody's took the following rating actions on Republic Services,
Inc.:
- Senior unsecured notes upgraded to Baa2 from Baa3
- Outlook changed to stable from positive
Moody's took the following rating actions on Browning-Ferris Industries
LLC:
- Senior unsecured notes upgraded to Baa2 from Baa3
- Outlook changed to stable from positive
Moody's took the following rating actions on tax exempt revenue bonds
guaranteed by Republic Services, Inc.:
- California Pollution Control Financing Authority Revenue Bonds
Series 2002-B, upgraded to Baa2 from Baa3
- California Pollution Control Financing Authority Revenue Bonds
Series 2002-C, upgraded to Baa2 from Baa3
- Director of Nevada Department of Business & Industry Revenue
Bonds Series 2001, upgraded to Baa2 from Baa3
Moody's took the following rating actions on tax exempt revenue bonds
guaranteed by Browning-Ferris Industries, LLC:
- California Pollution Control Financing Authority Revenue Bonds
Series 1989, upgraded to Baa2 from Baa3
- California Pollution Control Financing Authority Revenue Bonds
Series 1992, upgraded to Baa2 from Baa3
- California Pollution Control Financing Authority Revenue Bonds
Series 1996-A, upgraded to Baa2 from Baa3
- New Morgan Industrial Development Authority (PA) Revenue Bonds
Series 1994, upgraded to Baa2 from Baa3
Republic Services, Inc. is the second largest provider of
solid waste collection, transfer, recycling and disposal services
in the United States. The company generated revenues of $10
billion for the fiscal year ended December 31, 2017.
The principal methodology used in these ratings was Environmental Services
and Waste Management Companies published in April 2018. Please
see the Rating Methodologies page on www.moodys.com for
a copy of this methodology.
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 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Eric Greaser
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Robert Jankowitz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653