Fresh off its failed initial public offering, GFL Environmental Inc. is raising $1.4-billion in private markets to fuel more acquisitions.
GFL issued US$775-million worth of new debt Monday, and its private backers kicked in another $300-million of new equity. The cash will be used to repay $300-million of existing debt and to fund the Canadian waste management’s company’s acquisition of County Waste of Virginia for $642-million.
The remaining proceeds will be temporarily parked as cash on GFL’s balance sheet, the company says, providing funds for future deals.
With a new financing and another acquisition, GFL is showing that it has no plans to change strategy since cancelling its US$2.4-billion IPO in early November. The company has been a serial acquirer since its inception in 2007, purchasing more than 100 companies as it consolidated a fragmented industry and became the fourth-largest waste management company in North America.
“We’re not stopping,” chief executive Patrick Dovigi said in an interview with The Globe and Mail, referring to his acquisitive streak. “We’re going to keep going.”
While acquisitions boost GFL’s earnings before interest, taxes, depreciation and amortization (EBITDA), they also tack on more debt – and leverage was a major concern for many investors who balked at the company’s attempted IPO.
Over the past three fiscal years, GFL has lost a cumulative $737-million, and in the first six months of fiscal 2019, the company lost $161-million, according to a regulatory filing for its IPO. Its interest and other financing costs, meanwhile, amounted to $251-million in the first half of fiscal 2019.
GFL’s fresh debt is a mix of both senior secured and unsecured notes. Mr. Dovigi said US$500-million worth of new senior secured notes were priced at 5.125 per cent, and GFL is also issuing US$275-million more of its existing 7-per-cent senior unsecured notes that mature in 2026.
GFL’s senior unsecured debt is rated Caa2 by Moody’s Investors Service and CCC+ by Standard & Poor’s – both deep in junk territory. The company’s secured debt also has junk ratings, but they are closer to investment grade – B1 from Moody’s and B+ from S&P.
In an updated rating report Monday after GFL’s new financing, Moody’s said it expects the company’s leverage to increase sightly to 7.1 times its EBITDA – adding that “continuing acquisitions will keep leverage around this level over the next 12 months.”
GFL completed a $5-billion leveraged buyout in 2018, making private equity firm BC Partners and the private capital arm of Ontario Teachers’ Pension Plan its largest owners. The plan was to use some IPO proceeds to repay a portion of this debt.
However, some potential public investors had privately voiced that they wanted to see the burden lowered to less than four times GFL’s adjusted EBITDA, according to people familiar with the deal. This was possible if the IPO had been priced within its original marketing range between US$20 and US$24 a share.
But many investors balked at this valuation, and because GFL was planning on selling a fixed number of shares, the IPO wouldn’t raise enough money at a lower price to repay the debt necessary to appease more conservative investors.
While GFL could have issued more shares to make up the shortfall, its largest backer, BC Partners, declined. “As a disciplined investor with a high quality asset such as GFL, we believe there is no reason to compromise on valuation," Paolo Notarnicola, BC’s lead partner on GFL, wrote in a statement to The Globe in November.
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