Lenders to Clean Harbors could potentially be pitted against the government authorities overseeing environmental liabilities in the event of a distressed scenario. This is because of the Braintree, Mass., company's planned acquisition of Safety-Kleen's Chemical Services Division for $46.3 million and the assumption of $265.4 million in environmental liabilities. The acquisition is being financed with a proposed $225 million bank deal, which has been rated B2 by Moody's Investors Service.
The problem stems from the acquisition of the Safety-Kleen division, which is required to clean up waste by environmental authorities. "Usually the banks have first priority claims," said Catherine Guinee, a senior credit officer at Moody's. But there are no clear precedents for what would happen if this went to court, putting public interest against private contract, she explained. The sum of the committed secured loans, comprising a $100 million revolver and a $125 million term loan, and the assumed liabilities is similar to the amount of current assets and the book value of net property, according to the Moody's report.
There are other potential downsides with the credit, including the risk associated with integrating a company of almost twice Clean Harbors' size and its underperforming assets. But Clean Harbors is attempting to achieve $67 million in synergies and, if the acquisition is successful, it could triple the revenues of the company, making Clean Harbors the largest provider of hazardous-waste treatment in the U.S. Bill Geary, executive v.p. of Clean Harbors, did not return calls.