Waste Management Inc.
) has declared the pricing of $500 million senior unsecured notes
bearing an interest rate of 2.90% and maturing on September 15,
2022. The notes will be guaranteed by its fully-owned subsidiary,
Waste Management Holdings Inc.
The proceeds from the offering will be used in repaying $400
million senior notes (carrying an interest rate of 6.375% and
maturing in November this year) in addition to paying the accrued
and unpaid interest on these notes. The remaining amount will be
utilized for general corporate purposes which include additions to
working capital and capital expenditures.
Fitch Ratings has assigned a 'BBB' rating to the $500 million note
offering. The rating has been conferred on the basis of Waste
Management's strong free cash flow, predictable nature of the waste
industry and its position as the largest integrated waste services
company in the U.S. Similarly, Standard & Poor has rated the
note offering at 'BBB'.
Waste Management had $8.973 billion of long-term debt as of June
30, 2012, higher than $8.839 billion registered a year ago. The
debt to capital ratio was 61.4% as of June 30, 2012, higher than
the year-ago level of 59%. Capital expenditure for the second
quarter was $351 million as compared with $280 million in the year
It is expected that with this note offering, the company's debt
level as well as the debt to capital ratio will increase. The
company will also have to bear higher interest expense to service
During the second quarter, the company posted adjusted earnings of
52 cents per share, increasing 4% year over year but missing the
Zacks Consensus Estimate by 1 cent. Revenues rose 3.3% year
over year to $3.459 billion, but fell behind the Zacks Consensus
Estimate of $3.52 billion.
Waste Management's volumes improved in the second quarter, after
witnessing declines for 23 consecutive quarters. We expect modest
volume growth in 2012 based on the improving trend in the
residential as well as industrial, special waste and recycling
However, the pricing environment remains challenging and highly
competitive due to aggressive bidding by smaller competitors. We
feel that any margin improvements will not take place until 2013.
Waste Management retains a short-term Zacks #4 Rank (Hold). We have
a long-term Hold recommendation on the stock.
WASTE MGMT-NEW (WM): Free Stock Analysis Report
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