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Moody's cuts EnviroSolutions view to negative
Moody's Investors Service said it changed to negative from stable the outlook on EnviroSolutions Holdings, Inc.'s B2 corporate family and probability-of-default ratings, B1 $40 million senior secured revolver due 2011 (LGD 3, 41%) and B1 $185 million senior secured term loan B due 2012 (LGD 3, 41%).
The agency said change in outlook reflects its concern regarding EnviroSolutions' negative cash flow generation, higher-than-expected capital expenditures (including growth capital expenditures), delays in the implementation of the company's rail-based transportation strategy - which in turn gave rise to higher-than-anticipated disposal costs and lower-than-expected gross margins and EBIT to interest coverage - and emerging weakness in residential construction along the Eastern seaboard and the potential impact of any adverse energy price fluctuations in 2007 on EnviroSolutions' costs.
Moody's said the outlook could be stabilized if the company is able to execute on existing investments in disposal assets to profitably improve internalization, thereby resulting in positive free cash flow on a sustainable basis, and is able to progress toward debt reduction below an adjusted debt-to-EBITDA ratio of 5x.
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