TEXT-S&P puts Clean Harbors ratings on watch negative

Mon Nov 5, 2012 1:28pm EST

Overview
     -- Clean Harbors Inc. recently announced that it has entered into
an agreement to acquire Safety-Kleen Systems Inc. for $1.25 billion in cash.
     -- The transaction is subject to certain closing conditions, including 
receipt of regulatory approvals, and the company expects the closing to occur 
in the fourth quarter of 2012.
     -- We are placing our ratings on Clean Harbors on CreditWatch with 
negative implications and are placing our ratings on Safety-Kleen on 
CreditWatch with positive implications.
 
Rating Action
As Standard & Poor's Ratings Services previously announced on Nov. 1, 2012, it 
placed its 'BB+' corporate credit rating and all other ratings on Norwell, 
Mass.-based Clean Harbors Inc. on CreditWatch with negative implications. At 
the same time, we placed our ratings, including our 'B+' corporate credit 
rating, on Plano, Texas-based Safety-Kleen Systems Inc. on CreditWatch with 
positive implications.

Rationale
The CreditWatch placement reflects the likelihood that Clean Harbors Inc.'s 
financial risk profile could weaken beyond expectations at the current rating, 
given our expectation that the company will primarily fund the Safety-Kleen 
acquisition with debt. While management has publicly stated that it will  use 
more than  $400 million of existing cash on hand to fund a portion of the 
transaction and that it intends to keep its reported debt-to-EBITDA in the 
2.5x area (under 3.0x at maximum), the company's pro forma funds from 
operations (FFO)-to-debt ratio will likely fall below the 30% mark we deem 
appropriate for the rating.  

The CreditWatch placement also reflects our view that Safety-Kleen's credit 
quality may improve as it becomes part of Clean Harbors. The company will 
become part of a company with a larger scope of operations and greater 
geographic and service diversity.

With roughly $2.2 billion in trailing-12-month revenues at June 30, 2012, 
Clean Harbors is one of the largest providers of environmental services and 
the largest operator of nonnuclear hazardous waste treatment facilities in 
North America. The company's operations include the collection, transport, 
treatment, and disposal of hazardous and industrial wastes; on-site 
maintenance services, such as tank cleaning, decontamination, remediation, and 
spill cleanup; high-pressure and chemical cleaning, catalyst handling, 
decoking, material processing, and lodging services to energy and industrial 
companies; and fluid handling, downhole servicing, directional boring services 
to oil and gas exploration, production, and power generation customers. A key 
to resolving the CreditWatch will be assessing the implications of the 
acquisition on Clean Harbors' competitive position, growth strategy, and the 
company's track record of balancing its growth objectives in accordance with 
prudent financial policies.  
The company expects the acquisition to close in the fourth quarter of 2012 and 
the acquisition is subject to customary regulatory approvals and closing 
conditions.

CreditWatch
We placed the ratings on Clean Harbors on CreditWatch with negative 
implications and placed the ratings on Safety-Kleen on CreditWatch with 
positive implications. We will monitor developments relating to this 
transaction and will resolve the CreditWatch listings once further details 
related to the transaction become available. We intend to meet with management 
to discuss a variety of topics related to the transaction, such as integration 
risks, the pro forma capital structure, and management's strategic objectives 
and financial policies. The CreditWatch placements indicate the heightened 
risk that we will lower Clean Harbors' ratings and raise Safety-Kleen's 
ratings following our review of the transaction and implications for credit 
quality. 

Related Criteria And Research
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 
Sept. 18, 2012
     -- Corporate Ratings Criteria 2008, April 15, 2008
 
Ratings List
CreditWatch Action

Clean Harbors Inc. 
                            To                 From
 Corporate credit rating    BB+/Watch Neg/--   BB+/Stable/--
 Senior secured             BB+/Watch Neg      BB+
  Recovery rating           4                  4
 Senior unsecured           BB+/Watch Neg      BB+
  Recovery rating           4                  4

Safety-Kleen Systems Inc. 
                            To                 From
 Corporate credit rating    B+/Watch Pos/--    B+/Stable
 Senior secured             BB-/Watch Pos      BB-
  Recovery rating           2                  2
 

 Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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