(The following statement was released by the rating agency)
CHICAGO, July 30 (Fitch) Fitch Ratings has affirmed Republic
Issuer Default Rating (IDR) at 'BBB'. The Rating Outlook is
RSG's rating is supported by the company's stable operating
conservative management strategy, consistent free cash flow
generation, and an
improving operating environment in the waste services industry.
continues to perform in-line with Fitch's expectations,
operating margins and a conservative capital structure. As of
June 30, 2013
RSG's debt/EBITDA stood at 3.1x, higher than the 2.9x leverage
ratio at the same
point in 2012 primarily due to higher labor, maintenance, and
costs.. Fitch considers RSG's leverage to be appropriate for the
given the company's consistent operating results.
Conditions in the waste services industry are improving. The
environment, which has been highly competitive coming out of the
eased in recent months, with most operators reporting consistent
growth in core prices. RSG reported a core price increase of
3.1% for the second
quarter representing the company's fourth consecutive quarter of
growth. Fitch expects full year core prices to grow in the low
based on modest improvements in the macroeconomic environment.
Waste volumes, which declined for several consecutive years
coming out of the
recession, have bottomed and are growing in some segments.
demolition volumes are improving, and should be expected to rise
the foreseeable future as construction activity comes off
Industrial and recycling volumes have also shown positive
volumes have been an area of weakness for Republic due to
contracts that were
lost in the first part of calendar 2012. Results in this area
should improve in
the second half of the year as comparisons become easier.
volumes are expected to show modest annual growth roughly
in-line with the
growth of the overall population.
Operating margins dipped over the past year, but Fitch expects
margins to show
modest improvement from current levels. Continued progress
automation, increased use of CNG vehicles, and a standardized
program should support incremental margin growth over the
Over the past year EBITDA margins have been adversely impacted
by the company's
One-Fleet maintenance initiative, which has had higher than
costs, but is ultimately expected to lower total maintenance
costs once the
program is fully implemented, likely by mid-2015. Labor costs
have been impacted
by a shift in volume mix with collection volumes performing
better than landfill
volumes. The higher incremental labor costs associated with
landfill operations have led labor costs to rise as a percentage
RSG's financial flexibility is solid. As of the end of the
second quarter the
company had $97 million in cash on hand and $1.7 billion in
($2.375 billion less $701.7 million in outstanding letters of
addition to its strong liquidity, the company has no major debt
the near future. RSG's two primary revolving credit facilities
do not mature
until April 2016 and May 2017, and none of its outstanding
mature until 2018.
Free cash flow in 2013 is expected to be in line with or
than the $281 million that RSG generated in 2012. Free cash flow
from moderately higher expected revenues and EBITDA margins,
which are expected
to be stable to slightly up from 2012 levels. These improvements
partially offset by higher cash taxes as a result of bonus
depreciation taken in
RSG's capital deployment strategy is expected to remain
tuck-in acquisitions and steady dividend growth. RSG announced a
to the quarterly dividend in its 2013 second quarter earnings
$0.26/share. This follows a 7% increase announced in July of
2012. Fitch also
expects the company to continue to make share repurchases as
cash flows allow
but not to the detriment of a healthy balance sheet. Republic
investment grade credit profile as strategically important and
is expected to
maintain credit metrics that are consistent with that view.
A future upgrade would likely be driven by a change in RSG's
strategy prioritizing debt reduction over shareholder friendly
upgrade could be considered if Debt/EBITDA were to approach
prior to the Allied acquisition, near 2.0x. This scenario is
seen as unlikely at
A negative rating action is not anticipated but could be
triggered by an
increase in debt to fund share repurchases or dividends, or a
Fitch has affirmed the following ratings:
Republic Services, Inc.
--IDR at 'BBB';
--Senior unsecured bank credit facilities at 'BBB';
--Senior unsecured long-term debt at 'BBB'
--IDR at 'BBB'
--Senior unsecured rating at 'BBB'
Joe Rohlena, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
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