Allied Waste North America’s $1.185 billion “B” loan traded in the 101-101 1/2 context after the company’s bank debt was downgraded to B2 from Ba3 by Moody’s Investors Service. The name usually trades at 102.
Catherine Guinee, a Moody’s analyst, attributed the downgrade to a material decline in the company’s financial and operational performance due to reduced volumes and increased cash requirements related to its aging fleet. She also cited a decrease in free cash flow generation in the last year and higher than anticipated implementation costs from the company’s Standards and Best Practices Program as reasons for the downgrade.
Free cash flow generation has decreased about 60% in 2004 compared to that of 2003. Allied Waste has a debt-to-EBITDA of over five times.
The J.P. Morgan-led “B” loan is priced at LIBOR plus 2 3/4%. Allied Waste North America also has a $1.5 billion revolver, a $200 million letter of credit facility, a $250 “C” loan and a $150 million “D” loan. “This current rating is more in line with the company’s current operating margins and debt leverage,” Guinee said. An Allied Waste spokesman did not return calls. “[The downgrade] was probably more than they deserved, [the market] did not seem to care,” one trader noted.