Covanta Holding Corporation
) has acquired Delaware Valley Resource Recovery Facility from GE
Energy Financial Services ("GE EFS"), a subsidiary of
General Electric Company
) for $94 million in cash.
COVANTA HOLDING (CVA): Free Stock Analysis
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Located in Chester, Pennsylvania, the Delaware Valley facility is
operated by Covanta. Pre-acquisition, the facility was previously
leased from GE EFS. The facility provides sustainable waste
management services to Delaware County, PA and surrounding
communities and posses a processing capacity of approximately
2,700 tons per day.
Per the terms of the deal, the transaction includes acquisition
of approximately $122 million cash collateral trust and the
assumption of $64 million in facility project debt principal. The
cash from the collateral trust will be shown as restricted cash
on the Covanta's balance sheet. The company plans to utilize the
cash to service project debt and to make cash distributions to
the company through 2019.
The transaction is immediately accretive to Covanta's adjusted
earnings before interest tax, depreciation and amortization
("EBITDA"), free cash Flow, and adjusted earnings per share.
Covanta funded the transaction with the cash in hand and
liquidity under its revolving credit facility. At the end of
third quarter of 2012, cash and cash equivalents were $262
million, up from $195 million at the end of third quarter of
Covanta based in Morristown, New Jersey was one of the Sandy
Superstorm victims. Therefore, post Sandy the company revised its
guidance in November 2012. It expects revenue to decline and
expenses related to repair and restart to surge due to the
disruption caused by the hurricane. It expects adjusted EBITDA to
be in the range of $490 million to $500 million versus its
previous range of $500 million to $515 million. It expects
adjusted earnings per share to be in the range of 50 cents to 55
cents per share versus its prior expectation of 55 cents to 60
cents per share. However, it re-affirmed its free cash flow
guidance in the range of $250 million to $265 million.
The transaction will lead Covanta Holding to become the sole
owner of the facility and have control of a well-run facility in
an attractive location. Therefore, it will be able to receive the
benefit of ownership. Consequently, this will bring in new
opportunities for the company and will build up client
relationship with the Delaware County Solid Waste Authority.
With this acquisition, the company continues to grow the value of
the existing portfolio and seems to be allocating its capital
efficiently. However, currently, the adverse impact of hurricane
Sandy and weakness in economy are matters of concern. The company
presently retains a short-term Zacks #3 Rank (Hold).
Covanta Holding Corporation is an internationally recognized
owner and operator of large-scale Energy-from-Waste and renewable
energy projects. The company's Energy-from-Waste facilities
provide communities with an environmentally sound solution to
their solid waste disposal needs by using that municipal solid
waste to generate clean and renewable energy.