Fitch Ratings has assigned 'BBB+' ratings to Waste Connections, Inc's (WCN) proposed issuance of two series of senior unsecured notes totaling $1.5 billion.

Fitch currently rates WCN's Long-Term Issuer Default Rating (IDR), senior unsecured credit facilities and senior unsecured notes 'BBB+'. The Rating Outlook is Stable.

Key Rating Drivers

New Notes: WCN plans to issue senior unsecured notes due in 2032 and 2052. Fitch's ratings on the notes reflect the expectation that proceeds will be used to refinance $1.5 billion of existing senior unsecured notes.

Rating Considerations: WCN's ratings incorporate industry-leading profitability and consistent financial performance. These strengths are supported by its good market position in less competitive secondary markets and stability in industry competitive fundamentals. The ratings also consider WCN's somewhat elevated leverage metrics compared to other 'BBB' category corporate issuers, and exposure to recycled commodity prices, construction activity and oil production.

Recent Performance: WCN's recovery from the pandemic remained solid through 1H21, with core pricing around the mid-single digits, while yoy volumes turned positive in 2Q21. The pace of recovery in volumes, mitigates concerns of long-term customer business closures. Volume declines reached a low-point in 2Q20, down 10% yoy. EBITDA margins are up over 100bps in 1H21 with gains in solid waste operations and favorable recycled commodity prices outpacing drags from lower E&P waste activity, discretionary compensation and M&A dilution.

Derivation Summary

WCN's ratings consider the company's top-three market position in the North American MSW industry, industry leading profitability, growing scale and the MSW industry's stable industry dynamic. WCN's ratings reflect the large vertically integrated scale of its operations, and while its scale has grown over the last few years to nearly $6 billion in annual review, it remains smaller than Waste Management, Inc. (WM; BBB+/Stable) at over $15 billion and Republic Services, Inc. (RSG; BBB/Stable) at $10 billion.

Combined, Fitch estimates the three peers account for over one-third of the industry. WCN's ratings also reflect its industry-leading EBITDA and FCF margins of over 30% and 10%, respectively, compared with WM and RSG, which have EBITDA margins in the mid-to-high 20's and FCF margins in the mid-single digits. WCNs debt/EBITDA in the mid-2x range is expected to be similar to WM's and lower than RSG's 3.0x. FCF/total debt is relatively strong, in the low teens, compared with WM's and RSG's, which are expected to be around the high single digits.

Key Assumptions

Organic growth around the high-single digits in 2021 with a continuation of good pricing in the year; organic growth then slows to the low to mid-single digits, primarily driven by pricing strength;

EBITDA margins improve in 2021, yet remain around 31%;

WCN remains active in pursuing acquisitions; however, its financial policies remain unchanged.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

A change to a more conservative financial policy leads to sustaining debt/EBITDA below 2.0x or FCF/ total debt reaching 20%;

The company develops a larger scale in MSW while maintaining its industry leading profitability.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A less conservative financial policy, weak operating performance or an aggressive acquisition posture leads to sustaining debt/EBITDA above 2.8x or FCF/total debt nearing 10%;

FCF margins decline, approaching the mid-single-digits.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

WCN had a healthy liquidity position at June 30, 2021, with $727 million of cash and $943 million of availability under its $2.2 billion revolving credit facility. On July 30th, 2021, revolver availability increased to $1.2 billion after the facility was increased to $2.5 billion and extended by five years. No near-term debt maturities are expected following the refinancing.

Issuer Profile

WCN is a leading municipal solid waste operator in North America. It has vertically integrated operations spanning collection, disposal and recycling activities.

Summary of Financial Adjustments

Fitch has made no material adjustments that are not disclosed within the company's public filings.

Date of Relevant Committee

29 March 2021

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

RATING ACTIONSENTITY/DEBT	RATING		

Waste Connections, Inc.

senior unsecured

LT	BBB+ 	New Rating		

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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