DBRS Confirms BFI Canada Inc. at BBB (low), Removes From UR-Dev

DBRS has today confirmed the BBB (low) rating on BFI Canada Inc.’s (BFI Canada or the Company) Senior Secured Debentures and removed the rating from Under Review with Developing Implications, where it was placed on November 12, 2009. The rating action follows the completion of the acquisition of Waste Services, Inc. (WSI) by IESI-BFC Ltd. (IESI-BFC), which is BFI Canada’s parent and guarantor. The final terms of the transaction were generally in line with DBRS’s expectations, and BFI Canada’s credit profile remains acceptable for the rating.

The impact of the WSI transaction is modestly negative to the financial risk profile of both BFI Canada and IESI-BFC (which influences the Company’s rating), but not to an extent that warrants a rating change. The increase in debt used to fund the acquisition is responsible, but largely offset by the increase in WSI earnings and cash flow. In addition, the Company's business risk profile modestly improves, mainly related to the resulting increase in scale and market penetration. The combination of WSI's Canadian operations with BFI Canada notably increases the Company's share of business from the commercial and residential non-hazardous waste markets.

On a pro forma basis, IESI-BFC's debt-to-EBITDA ratio is 2.7 times, which is higher than the 2.4 times achieved at the end of 2009 but in line with expectations at the time of the initial merger announcement. Importantly, DBRS views the resulting increase in BFI Canada's debt levels related to the inclusion of WSI's Canadian operations as acceptable, with a debt-to-EBITDA ratio below that of IESI-BFC. Over the near term, DBRS expects both entities to reduce debt from free cash flow and to strengthen their coverage ratios (IESI-BFC targets debt-to-EBITDA of 2.5 times). Concurrent with the acquisition, both BFI Canada and IESI-BFC entered into new credit facilities, with proceeds used to repay outstanding bank debt and retire WSI debt.

DBRS notes that the combined IESI-BFC/WSI operation becomes North America’s third-largest solid waste management company, with pro forma revenues of roughly US$1.5 billion, an employee base of over 6,000 and an improved position in the commercial, industrial and residential non-hazardous waste markets in the United States and Canada. IESI-BFC performed well over the past year despite the recession, with relatively stable financial performance in 2009 and growth in Q1 2010. Expected pre-tax synergies from the WSI transaction are estimated at US$25 million to US$30 million in two years.
Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Consumer Products, which can be found on our website under Methodologies.

This is a Corporate rating.