Republic Services upgraded to A- from BBB+ on better metrics - S&P

Investing.com -- S&P Global Ratings has upgraded Republic Services Inc (NYSE:RSG). and its subsidiary Allied Waste Industries Inc. to ’A-’ from ’BBB+’ due to improved credit metrics, according to a statement released Thursday.

The rating agency also raised its issue-level rating on Republic’s unsecured debt to ’A-’ from ’BBB+’ while affirming its short-term issuer credit rating of ’A-2’ with a stable outlook on all ratings.

The upgrade stems from Republic’s sustained improvement in leverage driven by strong operational performance. S&P Global Ratings-adjusted EBITDA increased to approximately $5.2 billion for the last 12 months ended March 2025, up from around $4.1 billion in 2022. During this period, EBITDA margins gradually improved to about 32% from 30%.

The company’s funds from operations (FFO) to debt has trended above S&P’s previous upside target of 25% since the third quarter of 2024, while S&P Global Ratings-adjusted debt to EBITDA has trended near 3x. The rating agency now expects Republic to maintain its FFO to debt and debt to EBITDA ratios at about 28% and 2.9x, respectively, on a weighted average basis.

S&P now views Republic’s overall credit profile as similar to peer Waste Management Inc (NYSE:WM)., with improved financial metrics offsetting a slightly weaker business risk profile. While Waste Management has larger scale and scope of operations, Republic’s operational execution and slightly higher EBITDA margins help mitigate some business risk.

The company has demonstrated disciplined approach to business growth and share repurchases, scaling back shareholder distributions in recent years. This was evident following the May 2022 acquisition of US Ecology (NASDAQ:ECOL) for $2.2 billion, when Republic paused share repurchases to prioritize bringing leverage back into its target range of 2.5x to 3x debt to EBITDA.

Republic’s business strengths include above-average profitability, pricing strength, and relative volume stability during economic downturns. The company has gradually shifted its Consumer Price Index-based customers to contracts linked to alternative indices or with higher fixed rate price increases, supporting pricing and margin expansion.

About 80% of Republic’s total revenues have annuity-like characteristics, providing stability to earnings. Its exposure to the more volatile construction and demolition market is limited at only 6%-7% of total revenues.

The stable outlook reflects S&P’s expectation that Republic will maintain adjusted debt to EBITDA on the higher end of 2x-3x and FFO to debt between 25%-30% over the next few years. S&P does not anticipate any transformational acquisitions over the next two years similar to the US Ecology purchase.

S&P could lower ratings if a severe economic downturn weakens pricing and volumes significantly or if the company adopts more aggressive growth strategies and financial policies. A rating upgrade could occur if operating performance exceeds expectations, with FFO to adjusted debt consistently over 30% and adjusted debt to EBITDA staying well below 3x, though S&P considers this unlikely in the current environment.

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