Casella Waste Systems working to achieve 3.5 times leverage ratio by selling assets, reducing debt

By Jennifer Lanning Drey

Portland, Ore., Sept. 2 - Casella Waste Systems, Inc. continued to work toward achieving its targeted leverage ratio of 3.5 times debt to EBITDA during the first quarter of fiscal 2011 by selling assets and reducing debt, John Casella, the company's chief executive officer, said Thursday during its quarterly earnings conference call.

The company believes achieving a leverage ratio of 3.5 times will better position it for a major debt refinancing in 2012, he said.

"We believe that our strategy to repay debt and reduce leverage is the right plan to drive long-term shareholder value, and we're already seeing positive results from our efforts with total funded leverage at 4.4 times at the end of our first quarter," Casella said.

Casella generated $4.5 million of free cash flow in the first quarter and repaid its debt by the same amount.

Free cash flow benefited during the quarter from $7.8 million of asset sale proceeds, which were offset by higher cash interest and higher capping and closure payments, Ed Johnson, Casella's chief financial officer, said during the call.

In the near term, the company's biggest opportunity to pay down debt and reduce leverage will come through the sale of select assets, Casella said.

However, the process will take time, he noted.

"We remain focused on the deleveraging initiative and share your sense of urgency, but as our recent gains on the sales have shown, we believe we can receive fair value for the assets we are selling by following a disciplined approach," he said.

Casella continues to dedicate significant resources and time to its deleveraging goal and believes it is on track to achieve it, the CEO said.

Driving improvements

In addition to asset sales, Casella is also working to delever the balance sheet by driving profitable revenue growth and increasing pricing as supported by the market.

Additionally, the company is working to execute cost controls and operating-efficiency programs, as well as harvesting value from its landfill investments, Casella said.

For the first quarter, Casella posted revenues of $139.8 million, up from revenues of $132.5 million in the same period of fiscal 2010. The company said the increase was driven mainly by solid waste volume growth and higher recycling commodity prices.

Adjusted EBITDA for the first quarter, excluding gain on divestitures, was $30.8 million.

Casella had $2.3 million of cash and cash equivalents at July 31, according to its earnings release.

The company also had $95.7 million available for borrowing under its revolving credit facility at quarter-end, Johnson reported during the call.

Higher free cash flow guidance

Casella also said Thursday that the company improved its free cash flow guidance for full-year fiscal 2011 by $3.0 million by removing growth capital expenditures that have since been reconsidered.

The expenditures that were eliminated were not expected to have an effect on current-year revenue or EBITDA, so Casella decided to push them out and focus on debt reduction instead, Johnson said.

Casella is a Rutland, Vt.-based provider of solid waste management services.

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