Fitch Ratings Affirms Republic Services' IDR at 'BBB+'; Outlook Stable.

CHICAGO -- Fitch Ratings has affirmed the ratings of Republic Services, Inc. (NYSE: RSG) as follows:

--Issuer Default Rating (IDR) 'BBB+';

--Senior unsecured bank credit facility 'BBB+';

--Senior unsecured debt 'BBB+'.

Fitch's ratings apply to $825 million in unsecured debt and a $1 billion unsecured revolving credit facility. The Rating Outlook is Stable.

RSG's ratings reflect the waste services provider's relatively low leverage, improving margin performance, good access to liquidity and favorable market mix, offset somewhat by a cash deployment strategy increasingly focused on returning cash to shareholders. Like its industry peers, RSG has focused over the past several years on pricing-driven margin growth, rather than volume-driven market share growth. This strategy has resulted in strong internal revenue gains, even as volumes have declined. In the second quarter, internal revenue growth of 4.1% was the result of a 5.2% increase in internal pricing, offset by a 1.1% decline in internal volumes. Although volumes have been negatively affected by weakness in the U.S. economy, especially those volumes related to residential construction, in general the industry is largely shielded from economic volatility, and pricing is expected to remain firm over the near term. Strengthening landfill pricing is especially encouraging, as higher landfill prices will support increased collection pricing, as well.

RSG's credit profile has remained relatively stable over the past several years. Although RSG began adding debt to its balance sheet in the fourth quarter of 2005, with debt peaking at $1.67 billion at Sept. 30, 2006, leverage rose only modestly during the period. Since the end of the third quarter last year, RSG has focused on debt reduction, and RSG ended the second quarter with $1.5 billion in debt. Lease-adjusted leverage (lease-adjusted debt/EBITDAR) was 1.9 times (x) at June 30, down from 2.2x at June 30, 2006, while EBITDAR fixed charges coverage (EBITDAR/gross interest expense plus rent) declined to 7.7x from 7.9x. The decline in coverage was due to increased interest rates and a higher average debt level in the current 12 month period.

RSG's cash-generating capability is strong, and it has ample access to liquidity. Free cash flow of $331 million (net cash from operations, less capital expenditures and dividend payments) over the 12 months ended June 30 resulted in a free cash flow margin of 10.6%, significantly higher than its largest competitors. At the same time, liquidity access was increased after RSG increased its revolving credit facility to $1 billion from $750 million in April. As of June 30, RSG had $570 million of revolver capacity available after accounting for outstanding letters of credit (LCs). Free cash flow will likely remain strong over the near term, although lower capital spending will be partially offset by significantly increased dividend payments through the remainder of 2007. Cash used for dividends is expected to be significantly higher in 2008 as a result of the 59% increase in dividend payments per share approved by RSG's Board of Directors in July. In addition, with few acquisition opportunities and virtually no debt maturities coming due over the remainder of 2007 or in 2008, most of RSG's near-term free cash flow likely will be targeted toward share repurchases.

Primary concerns are the waste services industry's history of seeking volumes at the expense of price, RSG's relatively aggressive plans to return cash to shareholders and ever-present environmental and regulatory risks. With RSG's key competitors all currently focused on margin expansion, a reversal of industry pricing strength is unlikely in the near term, although pricing pressure could develop if economic weakness drives a larger-than-expected decline in industry volumes. In terms of returning cash to shareholders, RSG has partially funded share repurchases with debt in the past and may do so again, although any increase in debt likely would be relatively small, and expectations are that such an increase would not have a material impact on RSG's credit profile. A large increase in debt to fund share repurchases would be cause for greater concern, however. Environmental and regulatory risks are generally tied to landfill operations and are an inherent part of the waste services industry. Although there is the potential for environmental or regulatory issues to affect RSG's credit metrics, none of the cases currently facing RSG are expected to significantly affect its near-term credit profile.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.