Fitch Rates Allied Waste's Proposed Sr Nts & Pfd Stock 'BB-/B-'.Business Editors CHICAGO--(BUSINESS WIRE)--April 1, 2003 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has assigned a rating of 'BB' to Allied Waste Industries' (NYSE NYSE See: New York Stock Exchange :AW) new $3 billion senior secured credit facility, 'BB-' to the proposed $300 million senior secured notes, and 'B-' to the new series C mandatory convertible Mandatory Convertible A type of convertible bond that has a required conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying common stock. preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. . The Rating Outlook is Stable. The Rating Outlook was recently revised from Negative, reflecting AW's steady and healthy debt reduction amid a weak operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. that has impacted margins and operating cash generation. Over the intermediate term, any improvement in economic conditions should result in margin expansion toward previous levels. AW recently announced a number of proposed transactions designed to improve its capital structure. The plan includes the issuance of $100 million in common stock, $300 million of mandatory convertible preferred stock, $300 million of 10-year senior secured notes, and $150 million of A/R securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. as well as placement of a $3 billion credit facility. In addition, the company plans to divest underperforming non-core assets (roughly $450 million in revenue), which are expected to generate approximately $300 million of after-tax proceeds during 2003. These transactions will replace its existing bank credit facility, improve the maturity schedule, contribute towards debt reduction, and further support the senior-most debt in the capital structure. It is expected that operating cash generation, preferred and common equity issuance In financial markets, an Equity Issuance is the sale of new equity or "stocks" by a firm to investors. Equity Issuance can involve a private sale, in which the transaction between investors and the firm takes place directly, or publicly, in which case the firm has to , and divestitures will be used to bring down debt by $1 billion during 2003. Free cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses is expected to total in excess of $300 million in 2003, providing a significant buffer in the case of further deterioration in the economy. The new agreement consists of a five-year, $1.5 million revolver (AW has already received commitments for the entire amount) and a $1.5 million term loan maturing in 2010. The refinancing plan significantly extends debt maturities. The new plan will reduce 2004 maturities to $230 million from the previous schedule of $604 million, 2005 maturities to $84 million from $609 million, 2006 maturities to $755 million from $1.276 billion, and 2007 maturities to $1 million from $806 million. The 2003 debt maturity of $164 million was paid in January. The improved liquidity should give the company greater financial flexibility and the reduced near-term payments are considered manageable through projected free cash from operations. The company has consistently demonstrated healthy access to external capital. AW's EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become margin for 2002 slipped below 32% as compared to slightly over 35% in 2000, with EBITDA falling 2% in 2002 to $1.753 billion. Excluding 2001 costs associated with acquisitions and divestitures, 2002 EBITDA fell 9.3%. Nevertheless, total debt declined to $8.882 billion from $9.260 billion in 2001. Separately, AW announced a price increase program for both collection and landfill businesses in an effort to mitigate effects from increased fuel and other operating costs operating costs npl → gastos mpl operacionales as well as continued weakness in the economy. Together with the planned workforce reduction of 500 employees in April, the company anticipates to see an EBITDA contribution of $45 million this year. The new financing and divestitures plan demonstrates management's intent to de-lever. A change in Outlook to Positive may be considered upon successful completion of the announced transactions, stable operating performance, and meaningful debt reduction. |
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