S&P: Casella Waste Systems Inc.'s Proposed $500 Million Senior Secured Credit Facility Rated 'B+' (Recovery Rating: '2')
At the same time, we lowered our issue-level rating on the company's senior unsecured industrial revenue bonds (IRBs) to 'CCC+' from 'BB-' and revised the recovery rating on the bonds to '6' from '1'. The '6' recovery rating indicates our expectation for negligible (0%-10%) recovery in the event of a payment default.
All of our other ratings on Casella Waste Systems remain unchanged.
The company is pursuing a $500 million senior secured credit facility to refinance its existing $190 million asset-based lending (ABL) facility ($61 million outstanding as of June 30, 2016) and senior unsecured subordinated notes ($346 million outstanding as of June 30, 2016). Following the refinancing, the company expects to have approximately $72 million of borrowings outstanding under its revolving credit facility. The revolving credit facility will be subject to a net leverage covenant and an interest coverage covenant, which will have subsequent step-downs and step-ups, respectively.
We revised our issue-level and recovery ratings on the company's senior unsecured IRBs to reflect that the bonds will be structurally subordinated to the proposed $500 million senior secured credit facility.
Casella is a vertically integrated provider of collection, recycling, transfer, and disposal services for residential, commercial, and industrial customers that primarily serves the Northeastern U. S. The company's generated $556 million in sales and $114 million in adjusted EBITDA during the trailing 12 months ended June 30, 2016. Our corporate credit rating on Casella reflects the company's vertically integrated business model, ample landfill capacity in a constrained region, and strong market share. This is somewhat offset by the company's limited geographic footprint, as it only operates in the Northeastern U. S. We view the company's proposed refinancing as modestly positive because we expect that the proposed credit facility will reduce the company's interest costs and provide it with greater flexibility to reduce its debt in the future. Following the refinancing, we anticipate that the company's adjusted debt-to-EBITDA metric will remain above 5x over the next 12 months, which is consistent with our current rating.