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Republic Services, Inc. -- Moody's said Republic Services' planned acquisition of US Ecology is credit negative; ratings unaffected

·10 min read

Announcement: Moody's said Republic Services' planned acquisition of US Ecology is credit negative; ratings unaffectedGlobal Credit Research - 09 Feb 2022New York, February 09, 2022 -- Moody's Investors Service (Moody's) said Republic Services, Inc.'s ("Republic") announcement of a signed agreement to purchase US Ecology is credit negative. However, Republic's Baa2 senior unsecured rating and outlook are unaffected at this time.US Ecology provides treatment, disposal and recycling of hazardous, non-hazardous and radioactive waste, as well as a range of complementary field and industrial services. The purchase price is approximately $2.2 billion, including US Ecology's debt, net of cash. The transaction has been approved by each company's board and is expected to close in the second quarter of 2022, subject to customary closing conditions and regulatory approvals. In the likely event that US Ecology's debt is repaid at closing, Moody's would withdraw US Ecology's ratings.Moody's views the sizeable transaction as credit negative because it will be funded with incremental debt (from existing and new sources) and increase Republic's financial leverage, and poses integration risks. Moody's estimates pre-synergy pro forma debt-to-LTM EBITDA at September 30, 2021 will approach 3.5x (including Moody's standard adjustments). As well, US Ecology, while bringing high value hazardous infrastructure, also adds a treatment-and-disposal (T&D) event business that is volatile and has experienced delays and deferrals from the effects of the pandemic. US Ecology's emergency response business also fluctuates with the uneven pace of large scale projects, and end market customer spending in its energy waste and field services segments (while improving) also remains cautious.However, Republic expects to return leverage to the pre-acquisition level within 18 months. Republic has had a positive history of integrating acquisitions and is a solid cash flow generator. In the event the company would suspend share repurchases to prioritize debt repayment and achieves targeted synergies, Moody's expects the leverage ratio to fall below 3x in that timeframe.The acquisition will increase Republic's scale in environmental solutions, while adding US Ecology's technical expertise in niche sectors of the industry and high value assets, which should continue to drive demand for its services.Republic Services, Inc. is the second largest provider of solid waste collection, transfer, recycling and disposal services in the United States. Revenue for the twelve months ended September 30, 2021 was nearly $10.9 billion.This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Yvonne Njogu Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Dean Diaz Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. 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