GFL Environmental Inc. Prices Private Offering of Senior Notes

Rhea-AI Summary

GFL Environmental announced the pricing of $500 million in 6.625% senior notes due 2032. The offering was significantly oversubscribed, resulting in an effective interest rate of 6.101% post-swap. The proceeds, along with cash on hand, will be used to redeem all $500 million of GFL's 4.250% Senior Secured Notes due 2025, which have a 4.805% effective rate. This move aligns with GFL's strategy to transition more debt from secured to unsecured and extend debt maturities while preserving balance sheet flexibility. The refinancing is expected to be leverage neutral and have minimal impact on free cash flow due to offsetting cash tax savings.

Positive

• Successful pricing of $500 million in senior notes due 2032.
• Significantly oversubscribed offering.
• Effective interest rate of 6.101% post-swap.
• Transition from secured to unsecured debt, consistent with an investment-grade capital structure.
• Extending debt maturities and preserving balance sheet flexibility.
• Refinancing expected to be leverage neutral.
• Incremental interest expense offset by cash tax savings, resulting in minimal impact on free cash flow.

Negative

• Higher interest rate on new notes at 6.625% compared to 4.250% on the redeemed notes.
• Increase in effective interest rate from 4.805% to 6.101% post-swap.

Insights

Financial Analyst

GFL Environmental Inc.'s announcement of a US$500 million senior notes offering at 6.625% interest rate is a significant move within the debt markets. The oversubscription of the notes indicates high investor confidence in GFL's creditworthiness. By refinancing its existing 4.250% Senior Secured Notes due 2025 with these new notes, GFL aims to move more of its debt from secured to unsecured, aligning with investment-grade capital structure principles.

From a financial perspective, the effective interest rate on the new notes, after a cross-currency swap, is 6.101%, higher than the 4.805% rate on the existing notes. This indicates a higher cost of borrowing, yet GFL considers this move to be leverage neutral. It implies an expectation of cash tax savings offsetting the increased interest expense, which should mitigate any immediate negative impact on the company's free cash flow. This refinancing extends debt maturities, which can be seen as a strategic move to enhance balance sheet flexibility.

Retail investors should consider that while the company incurs a slightly higher interest cost, the long-term benefits of debt restructuring to an unsecured basis and extended maturity could outweigh the immediate expense. This move signals GFL's confidence in its future cash flows and credit position, aligning with a prudent capital structure strategy in anticipation of continued growth and stability.

Market Research Analyst

GFL Environmental Inc.'s strategy to refinance its secured notes with unsecured senior notes can significantly impact its market perception. Moving from secured to unsecured debt often reflects a company's strengthened financial health. The fact that the offering was significantly oversubscribed underlines a strong demand for GFL's debt, indicating investor confidence in its stability and growth prospects.

For retail investors, it's important to recognize that the company's attempt to shift towards an investment-grade capital structure may attract more institutional interest, potentially leading to improved market valuations. However, the higher interest rate on the new notes compared to the old ones might be a point of concern. Nevertheless, the overall strategy to extend debt maturities and preserve balance sheet flexibility points to a well-thought-out long-term vision.

This strategic financial move might also positively affect GFL’s stock price in the short to medium term as it demonstrates proactive financial management and foresight. Investors should watch for any further announcements that could provide additional insights into how these changes impact GFL's financial performance and its ability to sustain growth.

VAUGHAN, ON, June 6, 2024 /PRNewswire/ - GFL Environmental Inc. (NYSE: GFL) (TSX: GFL) ("GFL") today announced the pricing of US$500 million in aggregate principal amount of 6.625% senior notes due 2032 (the "Notes"), in a transaction that was significantly oversubscribed. The Notes will have an effective interest rate to GFL of 6.101% after giving effect to a cross-currency interest rate swap. GFL intends to use the net proceeds from the offering of the Notes (the "Notes Offering"), together with cash on hand, to redeem all of GFL's outstanding US$500 million aggregate principal amount of 4.250% Senior Secured Notes due 2025 (the "2025 Secured Notes") and to pay related fees, premiums and accrued and unpaid interest on the 2025 Secured Notes. The 2025 Secured Notes have an effective interest rate of 4.805% after giving effect to a cross-currency interest rate swap. The Notes will be issued by a U.S. wholly owned subsidiary of GFL and will be guaranteed by GFL and certain of its other subsidiaries.

GFL is opportunistically pursuing the Notes Offering, with a view to moving more of its debt from secured to unsecured, consistent with an investment grade capital structure, extending its related debt maturities and preserving balance sheet flexibility. The refinancing of the 2025 Secured Notes is expected to be leverage neutral. In addition, it is expected that any incremental interest expense incurred as a result of the Notes Offering will be offset by cash tax savings, resulting in an immaterial impact to GFL's free cash flow.

The Notes being offered in the Notes Offering have not been, and will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Notes are being offered only to qualified institutional buyers under Rule 144A and outside the United States in compliance with Regulation S under the Securities Act. In Canada, the Notes are to be offered and sold on a private placement basis in certain provinces of Canada.

This release shall not constitute an offer to sell or a solicitation of an offer to buy any security, nor shall there be any offer, solicitation or sale of any security in any state or jurisdiction in which such an offer, solicitation, or sale would be unlawful.

About GFL

GFL, headquartered in Vaughan, Ontario, is the fourth largest diversified environmental services company in North America, providing a comprehensive line of solid waste management, liquid waste management and soil remediation services through its platform of facilities throughout Canada and in more than half of the U.S. states. Across its organization, GFL has a workforce of more than 20,000 employees.

Forward-Looking Information

This release includes certain "forward-looking statements", including statements relating to the potential for an offering and issuance of the Notes by GFL and the use of proceeds therefrom. In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management's current beliefs, expectations, estimates and projections regarding future events and operating performance. Forward-looking statements are necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by GFL as of the date of this release, are subject to inherent uncertainties, risks and changes in circumstances that may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ, possibly materially, from those indicated by the forward-looking statements include, but are not limited to, the "Risk Factors" section of GFL's annual information form for the year ended December 31, 2023 and GFL's other periodic filings with the U.S. Securities and Exchange Commission and the securities commissions or similar regulatory authorities in Canada. These factors are not intended to represent a complete list of the factors that could affect GFL. However, such risk factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. You should not place undue reliance on forward-looking statements, which speak only as of the date of this release. GFL undertakes no obligation to publicly update any forward-looking statement, except as required by applicable securities laws.

For more information:
Patrick Dovigi
+1 905-326-0101
pdovigi@gflenv.com

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SOURCE GFL Environmental Inc.

FAQ

What is the interest rate on GFL Environmental's new senior notes?

The interest rate on GFL Environmental's new senior notes is 6.625%.

When are GFL Environmental's new senior notes due?

GFL Environmental's new senior notes are due in 2032.

How much did GFL Environmental raise through the new senior notes offering?

GFL Environmental raised $500 million through the new senior notes offering.

What is the effective interest rate after the swap on GFL Environmental's new notes?

The effective interest rate after the swap on GFL Environmental's new notes is 6.101%.

What will the proceeds from GFL Environmental's notes offering be used for?

The proceeds will be used to redeem $500 million of GFL's 4.250% Senior Secured Notes due 2025 and pay related fees and interest.

How does GFL Environmental plan to manage the new debt?

GFL Environmental plans to use the new debt to transition from secured to unsecured debt, extend debt maturities, and preserve balance sheet flexibility.

What is the potential impact on GFL Environmental's leverage from the new notes offering?

The refinancing is expected to be leverage neutral for GFL Environmental.

Will the new notes offering affect GFL Environmental's free cash flow?

The incremental interest expense from the new notes is expected to be offset by cash tax savings, resulting in minimal impact on GFL Environmental's free cash flow.