OREANDA-NEWS. Fitch Ratings has assigned a rating of 'BBB' to Waste Management, Inc.'s (WM) proposed senior unsecured notes. The Issuer Default Rating (IDR) for WM is 'BBB' and the Rating Outlook is Stable.

The proposed notes will be issued in three tranches of 10-year, 20-year and 30-year notes. A portion of the proceeds will be used to fund the tender offer that WM announced this morning, with the remaining to be used for general corporate purposes. The tender offer is for any and all of five series of notes with a total principal value of \$2.3 billion. Proceeds from the proposed notes will also be used to fund the redemption that the company completed in January 2015.

In addition to the tender offer announced this morning, in January 2015, WM redeemed three series of notes with a total principal value of \$950 million. The changes to WM's capital structure that will be accomplished by the January note redemptions, the tender offer announced today, and the offering of the proposed notes will reduce WM's near-term debt maturities, simplify its capital structure and likely reduce its interest expense. The notes redeemed in January carried interest ranging from 6.375% to 7.375%, while interest on the notes included in today's tender offer ranges from 6.125% to 7.75%.

KEY RATING DRIVERS

WM's ratings are supported by its strong free cash flow (FCF), leading market position within the environmental services industry, stable credit metrics, and consistent capital deployment strategies. Consistent with the transactions announced in January and today, Fitch expects WM to continue maintaining solid liquidity and relatively stable leverage (total debt/Fitch-adjusted EBITDA) of around 3.0x. Fitch also expects FCF (cash flow from operations less capital expenditures and common dividends) in 2015 to be in the \$400 million to \$500 million range. Going forward, Fitch expects WM to continue prioritizing its capital deployment primarily on growth opportunities, with remaining capital used for shareholder-friendly activities.

Following the divestiture of its Wheelabrator waste-to-energy business in late 2014, WM has sharpened its focus on its core environmental services operations. Although Fitch views this positively, WM has been more willing than some of its competitors to venture into less core business opportunities in the past and this continues to be a potential rating concern. Another concern is the magnitude of share buybacks that the company has undertaken from time-to-time. A significant non-core acquisition or a large cash return to shareholders that results in a meaningful deterioration of the company's credit metrics could prompt a negative rating action.

WM's financial flexibility remains strong. At year-end 2014, WM had total liquidity of \$2.8 billion, consisting of \$1.3 billion in cash and \$1.5 billion in availability on its primary revolver. Cash liquidity was considerably higher than normal due to a portion of the proceeds from the \$1.95 billion Wheelabrator sale that remained on the company's balance sheet at year end. Fitch expects WM's cash level to normalize over the intermediate term as the company targets the remaining cash proceeds from the Wheelabrator sale toward acquisitions or share repurchases. Over the longer term, Fitch expects the company to generally maintain a cash balance of between \$100 million and \$150 million.

KEY ASSUMPTIONS

Fitch's key assumptions within its rating case for WM include:

--Low single-digit organic revenue growth over the intermediate term;
--Slight growth in EBITDA margins over the next several years, reflecting restructuring benefits and improved pricing;
--EBITDA leverage remains near the current level through the intermediate term;
--Annual capital expenditures equal to about 9% of revenue;
--The company continues to make modest to moderate acquisitions each year;
--Dividends grow modestly on an annual basis;
--The company retains about \$100 million to \$150 million in cash on its balance sheet, with excess cash targeted toward share repurchases.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to a positive rating action include:

--Maintaining leverage (total debt/Fitch-adjusted EBITDA) below 2.5x for a prolonged period;
--FCF margin consistently greater than 5%;
--A change to a more conservative financial strategy.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:

--Leverage reaching 3.25x for a prolonged period;
--Inability to rebound from a period of FCF pressure to a FCF margin of approximately 2% to 3%;
--Debt-funded share repurchases or dividends or a large debt-funded acquisition;
--A change to a less conservative financial strategy.

Fitch currently rates WM as follows:

--IDR at 'BBB',
--Senior unsecured credit facility at 'BBB',
--Senior unsecured debt at 'BBB'.

The Rating Outlook is Stable.