Waste Pro earns favorable financing rating

The Toronto office of Fitch Ratings has assigned Longwood, Florida-based Waste Pro USA Inc. a ‘B+’ grade in the first time the financial services firm has rated the solid waste and recycling company.

Fitch calls the B+ rating a “first-time long-term issuer default rating (IDR)" to Waste Pro, adding that it considers the company’s rating outlook stable. Fitch also assigned a BB+/RR1 rating to the company’s asset-based lending (ABL) and a BB-/RR3 rating to Waste Pro’s senior unsecured bonds.

According to Fitch, nonpublicly traded companies like Waste Pro could seek ratings to help increase the marketability of nonpublic financing transactions or for project finance and structured finance so that asset managers, banks and other financial institutions can obtain timely information during the lending process.

Waste Pro's rating "reflects the inherent stability of municipal solid waste (MSW) collection across economic cycles, its multiyear service contracts with a long-term, diversified customer base and established position in the growing United States Southeast," Fitch says.

“The rating is also supported by Waste Pro’s selective contract bidding and renewals that enhance route density and cost recovery.”

Fitch says its determination is tied to forecasts of neutral-to-positive annual free cash flow (FCF) generation, which the company could enhance, if needed, by paring back growth spending.

Regarding reasons for a ceiling on Waste Pro’s rating, Fitch writes, “M&A activity could lead to variability and deterioration in credit metrics to levels that are generally consistent with B+ rating tolerances. Waste Pro’s concentrated ownership profile introduces governance risks, such as potential large distributions, but this is mitigated by management’s track record of prioritizing business investment.”

Approximately 73 percent of Waste Pro’s revenue is tied to residential and commercial waste collection services, which it says is fairly stable through economic cycles, because of consistent waste generation from households and businesses.

Waste Pro contracts in the five-to-10-year span provide added earnings visibility, according to Fitch.

“A portion of its revenue is from construction and demolition (C&D) activity which tends to be relatively more susceptible to business cycles," the firm adds.

The waste firm’s placement in the Southeast is considered favorable, even in its C&D operations, according to Fitch, which writes, “Long-term growth fundamentals in Waste Pro’s core operating regions are supported by secular growth trends and population shifts that also support active construction-driven business.”

While Waste Pro might not own the landfill capacity of some of its larger rivals, such as Houston-based WM or Phoenix-based Republic Services, the company’s location in the Southeast might again mitigate a potential downside.

“Large MSW firms benefit [from] company-controlled landfills, supporting a stronger ability to manage respective cost structures,” Fitch says. “However, Waste Pro's focus on disposal-neutral markets provides optionality in disposal and reduces longer-term liability exposure.”

Regarding the path ahead for Waste Pro, Fitch expects the firm’s organic (non-M&A-related) revenue to grow in the low teens in 2024 driven mainly from strong pricing improvement and volume growth.

Following that, Fitch says, “Revenue growth tempers to mid-single digits toward 2026 on moderating pricing and volume growth.”