S&P Reaffirms Ratings on Waste Connections (WCN) Amid Move to Merge with Progressive Waste Solutions (BIN)

Standard & Poor's Ratings Services said today that it has affirmed its 'BBB+' corporate credit rating on Waste Connections Inc. The outlook is stable.

At the same time, we affirmed all of our 'BBB+' issue-level ratings on Waste Connections' existing debt.

"While we believe that the proposed merger will strengthen Waste Connections' business risk profile, we continue to assess the company's business risk profile as being at the higher end of our strong category," said Standard & Poor's credit analyst Henry Fukuchi. The proposed transaction will modestly improve Waste Connections' business risk profile by increasing the company's scale, diversifying its revenue streams, and improving its geographic diversity. Pro forma for the transaction, we expect the company to maintain EBITDA margins of about 31% while achieving revenues of about $4 billion and free cash flow of about $600 million annually.

The stable outlook on Waste Connections Inc. reflects our view that the proposed merger will continue to support the company's leading positions in most of its markets. We also expect that stable pricing and effective cost management will help the company maintain strong profitability and good cash flow generation. We expect management to maintain prudent financial and strategic policies such that the company's adjusted debt-to-EBITDA metric remains between 2.5x and 3.0x following the completion of the proposed transaction.

We could lower our ratings on Waste Connections if the company's financial policies, large acquisitions, or unexpected challenges increase the company's adjusted debt-to-EBITDA metric above 3x with no clear prospects for recovery. This could occur if the company engaged in a debt-financed transaction that stretches its financial risk profile beyond our expectations with no clear prospects of restoring it to appropriate levels for the rating.

Although less likely, we could raise our ratings on Waste Connections during the next two years if its operating trends improve by more than we currently expect and it adheres to prudent financial policies that cause its adjusted debt-to-EBITDA metric to decrease below 2.5x and its FFO-to-adjusted debt ratio to increase above 30%.

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