Fitch Ratings has assigned 'BBB+' ratings to
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
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
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 '
Liquidity and Debt Structure
WCN had a healthy liquidity position at
Issuer Profile
WCN is a leading municipal solid waste operator in
Summary of Financial Adjustments
Fitch has made no material adjustments that are not disclosed within the company's public filings.
Date of Relevant Committee
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
senior unsecured
LT BBB+ New Rating
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