Fitch Ratings Affirms Waste Management at 'BBB'.

CHICAGO -- Fitch Ratings has affirmed the ratings for Waste Management, Inc.'s (NYSE:WMI) senior unsecured Bank credit facility and senior unsecured notes at 'BBB'. At the same time, Fitch withdrew the rating for convertible subordinated debt. The Rating Outlook is Stable. Approximately $8 billion of debt is covered by their ratings.

The ratings are based on WMI's leading market position in the North American waste services industry, its strong asset base, a diverse mix of customers, high levels of free cash flow, financial flexibility, and the relatively low volatility of the waste industry. The low volatility of the waste business and the company's large level of discretionary expenditures provide a strong buffer against economic cycles despite the capital-intensive nature of the industry.

Through its premier asset position in North America, WMI generates strong free cash flow, about $1 billion per year. Approximately 50% of free cash flow is expected to be paid out as dividends. In the absence of acquisitions, the rest is expected to be used for share repurchases. In early 2005, WMI initiated a new three-year capital allocation program to return up to $1.2 billion annually to shareholders. These expenditures could be curtailed in favor of acquisitions, if necessary, but opportunities to make large acquisitions appear limited, and Fitch expects WMI's leverage will remain stable.

The waste management industry has experienced margin contraction over the past several years due to a soft operating environment and competitive pricing. However WMI's margins have deteriorated less than some of its competitors'. Higher fuel prices, insurance and other costs such as maintenance and repair have also pressured margins. The company has focused on cost reduction and efficiency improvement initiatives, including waste route, maintenance, procurement, safety and compensation programs over the past several years. In addition, WMI plans to reinvest in growth by making improvements to facilities and services and making bolt-on acquisitions. While these initiatives should help control costs, Fitch expects margin improvement will largely be derived from efforts to improve pricing. Although volumes have been strong, pricing remains competitive. WMI recently announced it would test pricing increases at 30 sites and early indications are that pricing may have begun to improve.

Leverage is not expected to change much as any cash generated from improved operating results will likely be absorbed by higher levels of share repurchases and dividend increases. Total debt at Dec. 31, 2004 remained flat at $8.6 billion ($8.5 billion at Dec. 31, 2003). The combination of stable debt and EBITDA growth during 2004 contributed to improvement in some of the credit metrics. Debt/EBITDA in 2004 was 2.8 times (x), compared to 3.0x in 2003, and EBITDA/interest was 6.3x in 2004, a slight improvement from 6.2x in 2003.

At Dec. 31, 2004, WMI had $443 million in cash and $1 billion of availability under its $2.4 billion revolver. Fitch expects a large portion of WMI's near term maturities of approximately $380 million to be refinanced using more cost effective financing options such as tax-exempt IRBs.