Canadian Pension Fund Invests $280M in Advanced Disposal

Canadian Pension Fund Invests $280M in Advanced Disposal

The Advanced Disposal also announced its second quarter earnings results.

Advanced Disposal Services, announced that Canada Pension Plan Investment Board (CPPIB) has completed a $280 million investment in Series B Preferred Units of Star Atlantic Waste Holdings II L.P., which is an investment partnership sponsored by Highstar Capital and the principal owner of Advanced Disposal Services.

Proceeds were used to redeem an investor's Series A partnership investment, and all remaining Series A Preferred Units were converted into Series B Preferred Units, which will result in lower preferred stock accrual expenses.

The move could pave the way for Advanced Disposal to move ahead with the IPO it had postponed earlier this year. Advanced Disposal had previously announced its intentions to conduct an IPO last year. In February it was prepping to move ahead with that IPO, aiming to raise as much as $470 million, when it abruptly was forced to postpone those plans citing what it called, “unfavorable equity market conditions.”

Advanced Disposal has the financial backing of private equity firm Highstar Capital. Highstar was purchased by Oaktree Capital Group in June 2014 and that deal included some conditions that may have contributed to the current deal.

According to a 2015 Waste360 interview with Stifel analyst Michael E. Hoffman, “Remember, Highstar (Advanced Disposal’s owner) sold a big chunk of Highstar to Oaktree, and retained this fund that holds the ADS portfolio position. We believe they have time-line milestones to hit when they start monetizing that portfolio; otherwise, ownership begins to accrue to Oaktree. I think there’s a little bit of, if you’re going to the public market, you’ve got to start that process sooner or later in order to create an orderly exit. You’re not exiting all in the first go, right? The stock market won’t let you do that.”

In May, Bloomberg reported that Advanced Disposal was working with bankers to sell a stake in the company that’s held by a single investor, Canadian pension plan OPTrust.

In the deal announced this week, CPPIB's investment will automatically be converted into common stock if Advanced Disposal Services Inc. completes a qualified initial public offering.

In addition, Michael Koen, senior principal, relationship investments of CPPIB has been appointed to the Board of Directors of Advanced Disposal.

Prior to joining CPPIB's relationship investments group in 2009, Koen was a vice president and director in TD Bank's merchant banking group where he focused on mezzanine debt and structured equity investments. Before that, Koen worked at Scotia Capital in the institutional equities and investment banking groups.

"We are extremely pleased with the opportunity to partner with Canada Pension Plan Investment Board and for Michael Koen to join our board,” Advanced Disposal CEO Richard Burke said in a statement. “CPPIB's long-term investment horizon makes them an ideal investor to work with as we continue to focus on generating profitable growth, enhancing cash flows, and creating value for our stakeholders."

Star Atlantic Waste Holdings II, LP was represented by Shearman & Sterling, LLP and Barclays, Credit Suisse and Deutsche Bankacted as placement agents.

Strong quarter

Advanced Disposal also announced its second quarter earnings results.

Its revenue for the three months ended June 30 came in at $358.2 million versus $355.2 million in the same period of the prior year. Net income during the second quarter increased $8.7 million year-over-year to $0.2 million and the company achieved record quarterly adjusted EBITDA and adjusted EBITDA margins of $107.5 million and 30.0 percent, respectively.

Revenue increased $6.6 million, or 1.9 percent, excluding the rollover impact of 2015 strategic business divestitures. This revenue improvement was driven by strong core disposal volume, which increased 5 percent on a tonnage basis from the second quarter of 2015.

The company continued to see strong pricing with average yield for the quarter of 1.7 percent. Core price yields were 3.1 percent in the commercial line of business, 3.9 percent in rolloff, and 1.1 percent in residential, which was muted by the rollover impact of lower 2015 CPI.

EBITDA margins increased 120 basis points from the prior year quarter driven by disposal volume, price yield, and lower workers compensation claim costs, benefiting from improved safety and fleet automation.

"We are pleased to see improvement in net income and a number of other key financial measures during the quarter, including achieving record quarterly EBITDA and EBITDA margins for the company" Burke said in a statement. "Our team remains committed to generating profitable growth and enhancing cash flow by focusing on safety and providing an excellent customer experience. These initiatives coupled with controlling costs, demonstrating price discipline, and closing on accretive tuck-in acquisitions in key markets will be the platform on which we drive earnings growth and improved returns on invested capital."

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