Waste Management Issues $500M Notes - Analyst Blog


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Waste Management Inc. ( WM ) 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 ago quarter.

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 the debt.

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 operations.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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