Investing.com -- Moody’s Ratings has upgraded the senior unsecured rating of Republic Services (NYSE: RSG ), Inc. (Republic) and its subsidiary, Browning-Ferris Industries, LLC (Browning-Ferris), to A3 from Baa1 on April 23, 2025. Alongside the upgrade, Moody’s has affirmed Republic’s Prime-2 short-term commercial paper rating and adjusted the outlook for both Republic and Browning-Ferris to stable from positive.
This upgrade and stable outlook are due to Moody’s expectation of strengthening credit metrics for Republic, despite a slowing economy and macroeconomic uncertainty. The ratings agency anticipates Republic will benefit from a resilient demand for solid waste services, effective pricing and cost controls, and accretive tuck-in acquisitions. These factors are expected to improve earnings and margins, as well as generate solid cash flow.
Republic’s growth investments in recycling facilities that enhance materials recovery, as well as capturing landfill gas for beneficial reuse, are expected to yield stronger returns in the coming years. Moody’s also expects Republic to maintain a balanced approach to capital when funding acquisitions and share repurchases.
The A3 senior unsecured rating reflects Republic’s significant scale and its position as the second-largest service provider in the US solid waste industry. The company’s predictable revenue stream, strong EBITDA margin, and robust free cash flow also contributed to the rating. Republic’s contracts with annual price escalators provide revenue stability, and tuck-in acquisitions are often accretive shortly after completion.
Despite cost inflation and macroeconomic headwinds, Republic is expected to maintain a healthy EBITDA margin of around 30%. However, the company’s acquisitions, often funded with debt, can temporarily increase leverage until targets are integrated. Republic’s treatment-and-disposal business and field service operations can also be affected by variable project timing and changes in customer spending during economic slowdowns.
Republic is exposed to commodity price volatility through its recycling operations. These risks are balanced by the company’s positive history of integrating acquisitions and strong cash flow. The company maintains a modest cash position and relies on cash flow from operations and its revolving credit facility for liquidity.
The rating could be upgraded with sustained EBITDA margin above 30%, funds from operations-to-debt nearing 35%, and debt-to-EBITDA sustained around 2.5x. A sustained increase in earnings and cash flow from recycling operations and sustainability investments could also support a rating upgrade.
On the other hand, the rating could be downgraded due to sustained margin erosion, inability to control costs, or declining revenue from weaker core pricing or competitive pressures. A debt-to-EBITDA ratio expected to remain above 3x or funds from operations-to-debt declining toward 25% could also lead to a downgrade. Further, weakening liquidity or debt-funded share repurchases or large scale acquisitions that significantly weaken credit metrics could lead to a rating downgrade.
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