Summary
Republic Services, Inc. (RSG) announced on July 17, 2020, that it entered into Amendment No. 2 to its Credit Agreement on July 14, 2020. This amendment, effective as of July 14, 2020, primarily aims to enhance financial flexibility for future acquisitions by modifying existing covenants. While the company did not require immediate relief from previous restrictions, it sought to align its credit agreement with more favorable terms recently offered by its lenders. The key changes involve the elimination of the consolidated interest coverage ratio covenant and an adjustment to the total debt to EBITDA ratio covenant. The maximum allowed total debt to EBITDA ratio has been increased from 3.50 to 1.00 to 3.75 to 1.00. Furthermore, the amendment introduces an "elevated ratio period" provision, allowing a higher total debt to EBITDA ratio of up to 4.25 to 1.00 for a limited time following significant acquisitions (over $200 million), with a cap of two such periods during the credit agreement's term. The company anticipates its total debt to EBITDA ratio for the period ending June 30, 2020, to remain consistent with the ratio from the first quarter of 2020.
Key Highlights
- 1Republic Services amended its Credit Agreement on July 14, 2020, to increase financial flexibility, particularly for future acquisitions.
- 2The amendment eliminates the consolidated interest coverage ratio covenant.
- 3The maximum total debt to EBITDA ratio has been increased from 3.50:1.00 to 3.75:1.00.
- 4A new provision allows for an "elevated ratio period" with a higher total debt to EBITDA limit of 4.25:1.00 following acquisitions exceeding $200 million.
- 5The elevated ratio period is capped at three fiscal quarters and a maximum of two such periods during the credit agreement's term.
- 6The company expects its total debt to EBITDA ratio for Q2 2020 to be consistent with Q1 2020 levels.
- 7These changes provide RSG with more strategic maneuverability for growth through acquisitions without immediately violating debt covenants.