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Moody's downgrades Tervita
In a corrected rating, Moody's Investors Service said it downgraded Tervita Corp.'s corporate family rating to Caa1 from B3, probability of default rating to Caa1-PD from B3-PD, first-lien senior secured revolving credit facility to B1 from Ba3, senior secured term loan to B3 from B2 and senior secured notes to B3 from B2. The senior debt rating was affirmed at Caa2, its speculative grade liquidity rating was affirmed at SGL-3, and its outlook was changed to stable from negative.
"Tervita's cash flows have underperformed our expectations since the company's rating outlook was changed to negative earlier this year," Darren Kirk, a vice president and senior credit officer with Moody's, said in Nov. 12 news release from the agency. "While adverse weather contributed to this underperformance, Tervita's adjusted debt/EBITDA is currently 10x. We expect improvement from this level but also believe the company's leverage will remain over 7x through 2014."
The agency said Tervita's Caa1 corporate family rating is primarily driven by its very high leverage, generally weak execution (especially of its growth spending) over the past couple of years and exposure to the cyclical land drilling business with a concentration in western Canada. Moody's is concerned that unless there is some growth in earnings in the next few years, the company's capital structure may be untenable.
The rating also recognizes that the company's liquidity is adequate through 2014, long-term industry fundamentals are favorable, barriers to entry are high, Tervita has a diverse list of blue-chip customers and it is one of the largest providers of waste management services to the Canadian oil and gas sector, the agency said.
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