Investing.com -- S&P Global Ratings has adjusted its ratings on GFL Environmental (NYSE: GFL ) Inc.’s unsecured notes and 2031 notes. The Toronto-based environmental service company’s senior unsecured notes rating was elevated to ’BB’ from ’BB-’, with the recovery rating revised to ’4’ from ’5’, indicating an estimated recovery of 35% from the previous 10%.

Concurrently, the rating on GFL’s 6.75% notes due 2031 was downgraded to ’BB’ from ’BBB-’, with the recovery rating also adjusted to ’4’ from ’1’. This aligns the ratings on these notes with those of the unsecured notes.

This adjustment follows GFL’s recent news that the collateral supporting the US$1 billion notes due 2031 has been released. S&P Global Ratings now assumes that the 2031 notes will have the same rank as the company’s other unsecured notes. This change reduces the portion of debt that has a higher rank than the unsecured claims, leading to a higher estimated recovery for the unsecured claims in a hypothetical default scenario.

The ’1’ recovery rating on GFL’s senior secured debt signals an expectation for a very high recovery (90%-100%; estimated at 95%) in the event of a default. This corresponds to a ’BBB-’ issue-level rating, which is two notches above the issuer credit rating.

Meanwhile, the ’4’ recovery rating on the company’s senior unsecured debt indicates an expectation for an average recovery (30%-50%; estimated at 35%) in the event of a default. This corresponds to a ’BB’ issue-level rating, which is the same as the issuer credit rating.

In a simulated default scenario, a default in 2030 is considered, resulting from the loss of customer contracts, increased competition, and margin erosion due to unexpected costs from acquisition integration issues. In this situation, GFL would be unable to meet its financial obligations, necessitating a restructuring of the company.

The recovery analysis assumes a gross reorganization value for the company of about C$5.1 billion. This estimate is based on an emergence EBITDA of about C$845 million and a 6x multiple. The simulated default assumptions include a revolver 85% drawn at default and a gross recovery value of about C$5.1 billion.

In a simplified waterfall, the net enterprise value, after 5% administrative costs, is C$4.8 billion. The total value available to secured first-lien debt claims is also C$4.8 billion, with secured first-lien debt claims of C$2.8 billion and recovery expectations of 90%-100% (estimated at 95%). The total value available to unsecured claims is C$2.0 billion, with senior unsecured debt and pari-passu claims of C$5.6 billion and recovery expectations of 30%-50% (estimated at 35%). All debt amounts include six months of prepetition interest.

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