MORRISTOWN, N.J., April 14, 2020 /PRNewswire/ -- Covanta
Holding Corporation (NYSE: CVA) (the "Company" or "Covanta") today
provided the following business and capital allocation update in
light of the current operating environment and economic uncertainty
created by the COVID-19 pandemic.
- All facilities currently operating with minimal disruption,
providing essential service
- Established new and expanded protocols to minimize health
risks and protect employees
- Initiating $15 to $30 million cost reduction program in
anticipation of potential impacts
- Revising dividend payment to $0.32 per share annualized, retaining
$90 million annually
- Resilient balance sheet with no near-term maturities and
ample liquidity
- Withdrawing 2020 guidance in light of macroeconomic
uncertainties due to the pandemic
A conference call will be held tomorrow (4/15/20) at
8:30 AM Eastern Daylight
Time.
Stephen Jones, President and CEO,
Covanta said: "I couldn't be more proud of our team and its ability
to continue to provide the highest level of service to our
customers in this most challenging environment. The health and
safety of our employees is crucial, and we have put in place
numerous protective protocols to ensure their ability to work
safely. At the same time, we are mindful of the economic challenges
the pandemic has brought and we are taking decisive steps to reduce
overhead and discretionary costs to ensure the Company operates
efficiently in the current environment and is positioned to thrive
in the future."
Sam Zell, Chairman of the Board,
Covanta said: "Covanta is a resilient company with critical
infrastructure assets that provide essential services under
long-term contracts. The Board believes that the Company's
operating and growth strategies, along with a robust ongoing return
of capital, represent the best path for maximizing long-term value
for our shareholders. In assessing capital policy, we believe that
a more balanced allocation of internally-generated capital among
near-term shareholder returns, growth investments, and accelerated
balance sheet improvement is more appropriate, both in the current
uncertain environment and over the long-term. The Board will
continue to review this policy to ensure the business is optimally
capitalized and has sufficient capital to grow, while maintaining
meaningful distributions to shareholders."
Critical Waste Infrastructure
Covanta's 41 Waste-to-Energy ("WtE") plants and 20 Material
Processing Facilities ("MPF") provide a vital service to our
municipal and commercial clients. As waste disposal facilities,
they are recognized as part of Critical Infrastructure by the
Department of Homeland Security and as essential services by all
relevant state and local governments. There has been no
interruption to service and we remain a primary waste outlet for
numerous municipalities and commercial customers. Residential waste
represents the substantial majority of the Company's contracted
volumes, and there has been little reduction in these volumes to
date. We also process commercial waste at many facilities, and
while commercial volumes from some customers have fallen, we are
accessing alternative waste sources and will continue to manage
waste inflows to minimize financial impacts.
Three of our WtE facilities are currently permitted to accept
Regulated Medical Waste ("RMW") and we have begun receiving
COVID-19 infected material. With combustion at 2,000 degrees
Fahrenheit, WtE is an efficient and environmentally compliant
solution for this waste. All facilities that accept RMW have
specialized equipment to handle these materials, as well as
incremental protocols and procedures to minimize contact.
In the UK, most of our construction activity is continuing and
we are working to mitigate any potential impacts. In England, construction activities are
considered essential and our Rookery and Newhurst sites are
adhering to guidance set by Public Health England and are currently
proceeding on schedule. However, the government in
Scotland has taken a different
approach, and construction at Earls Gate has recently been halted.
Further updates as to any potential changes in project timing will
be provided as appropriate.
Focus on Employee Health and Safety
Covanta has adopted a number of incremental protocols to ensure
the safety and wellbeing of the workforce. Since March 16, all corporate and field administrative
employees have successfully transitioned to working from home while
essential plant employees continue to report to their facilities.
At the facilities, incremental safety procedures include a
reduction of visitors and cancellation of all tours, increased
usage of personal protection equipment and sanitizing products,
enhanced protocols for social distancing and frequent disinfection
of commonly used areas, and temperature checks of all employees and
contractors before starting work each day. All protocols follow
guidance by the Centers for Disease Control and Covanta will
continue to update these programs as needed.
Initiatives to Proactively Reduce Costs
In light of the uncertainty around the potential financial
impacts of COVID-19, Covanta has established a goal of reducing
2020 costs by $15 to $30 million, undertaking several programs:
- Eliminating all non-essential travel and significantly reducing
discretionary spend.
- Enacting a hiring freeze for new corporate employees.
- Lowering compensation through a 50% reduction in CEO wages, a
25% reduction in executive leadership wages, and a 20% reduction in
wages for all corporate support employees through a combination of
wage reductions and furloughs. These measures are initially
expected to remain in place for the next 12 weeks.
- Lowering Board of Directors fees by 60% during the same time
period as management salary reductions and furloughs.
In addition to these new cost initiatives, a portion of the
Company's annual incentive compensation plan is tied to Adjusted
EBITDA, and would automatically adjust downward in response to
lower Adjusted EBITDA relative to targets, providing an incremental
cost reduction.
Growth investment for 2020 is expected to be focused primarily
on UK projects and the start-up of our first Total Ash Processing
System. The Company will remain highly disciplined in making any
additional discretionary investments this year.
Revising Dividend to Balance Capital Allocation and
Accelerate Balance Sheet Improvement
Beginning with the dividend expected to be declared in the
second quarter, the Board plans to lower the annualized payout to
$0.32 per share, representing an
approximately two-thirds reduction, thereby increasing cash
retention for other uses by $90
million on an annual basis. This adjustment results in a
more balanced capital allocation policy that continues to provide
attractive returns to shareholders, while preserving liquidity in
the near-term and accelerating balance sheet improvement over
time.
Resilient Balance Sheet with No Near-Term Maturities and
Ample Liquidity
At March 31, 2020, Covanta had
total debt of approximately $2.6
billion, with no debt scheduled to mature prior to 2023.
The financial covenant ratio of senior secured debt to
Adjusted EBITDA under our corporate credit facility is estimated to
be 2.2x as of March 31, 2020,
substantially below the covenant limit of 4.0x. At March 31, available borrowing capacity under the
revolving credit facility was $425
million, which we believe will provide ample liquidity for
any potential stress scenario during the COVID-19 pandemic
period.
Withdrawing 2020 Guidance
While the majority of Covanta's business is stable, supported by
long-term contracts and operating in line with prior expectations,
the current environment is very fluid and there are numerous
uncertainties relating to the timeline of the COVID-19 pandemic and
its potential impact on the broader economy and our business. Given
this uncertainty, Covanta is withdrawing its previously issued
guidance for 2020. Covanta will provide a more detailed update on
current operating conditions on its quarterly earnings results call
in early May.
Conference Call
Covanta will host a conference call at 8:30 AM Eastern Daylight Time tomorrow
(Wednesday April 15, 2020) to discuss
this update. The conference call will begin with prepared remarks
from Sam Zell, Chairman of the
Board, and Steve Jones, President
and CEO, which will be followed by a question and answer
period.
To participate, please dial 888-317-6003 (US) or
1-412-317-6061 (International) approximately 15 minutes prior to
the scheduled start of the call and enter passcode
2104718. The conference call will also be webcast live from
the Investor Relations section of the Company's website at
www.covanta.com.
An archived webcast will be available two hours after the end of
the conference call and can be accessed through the Investor
Relations section of the Covanta website
at www.covanta.com.
About Covanta
Covanta is a world leader in providing
sustainable waste and energy solutions. Annually, Covanta's modern
Waste-to-Energy facilities safely convert approximately 21 million
tons of waste from municipalities and businesses into clean,
renewable electricity to power one million homes and recycle over
500,000 tons of metal. Through a vast network of treatment and
recycling facilities, Covanta also provides comprehensive
industrial material management services to companies seeking
solutions to some of today's most complex environmental challenges.
For more information, visit covanta.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
Certain statements in this press release may
constitute "forward-looking" statements as defined in Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"),
Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act"), the Private Securities Litigation Reform Act of 1995 (the
"PSLRA") or in releases made by the Securities and Exchange
Commission ("SEC"), all as may be amended from time to time.
Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
actual results, performance or achievements of Covanta Holding
Corporation and its subsidiaries ("Covanta") or industry results,
to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Statements that are not historical fact are
forward-looking statements. Forward-looking statements can be
identified by, among other things, the use of forward-looking
language, such as the words "plan," "believe," "expect,"
"anticipate," "intend," "estimate," "project," "may," "will,"
"would," "could," "should," "seeks," or "scheduled to," or other
similar words, or the negative of these terms or other variations
of these terms or comparable language, or by discussion of strategy
or intentions. These cautionary statements are being made
pursuant to the Securities Act, the Exchange Act and the PSLRA with
the intention of obtaining the benefits of the "safe harbor"
provisions of such laws. Covanta cautions investors that any
forward-looking statements made by Covanta are not guarantees or
indicative of future performance.
Important factors, risks, and uncertainties that could cause
actual results of Covanta and our joint ventures to differ
materially from those forward-looking statements include, but are
not limited to:
- seasonal or long-term fluctuations, or fluctuations due to the
impact of the COVID-19 pandemic, in the prices of energy, waste
disposal, scrap metal and commodities, and Covanta's ability to
renew or replace expiring contracts at comparable prices and with
other acceptable terms;
- adoption of new laws and regulations in the United States and abroad, including energy
laws, tax laws, environmental laws, labor laws and healthcare
laws;
- advances in technology;
- difficulties in the operation of our facilities, including fuel
supply and energy delivery interruptions, failure to obtain
regulatory approvals, equipment failures, labor disputes and work
stoppages, lockdowns or other restrictions due to the COVID-19
pandemic, and weather interference and catastrophic events;
- failure to maintain historical performance levels at Covanta's
facilities and Covanta's ability to retain the rights to operate
facilities Covanta does not own;
- Covanta's and the joint ventures ability to avoid adverse
publicity or reputational damage relating to its business;
- difficulties in the financing, development and construction of
new projects and expansions, including increased construction costs
and delays;
- Covanta's ability to realize the benefits of long-term business
development and bear the costs of business development over
time;
- Covanta's ability to utilize net operating loss
carryforwards;
- limits of insurance coverage;
- Covanta's ability to avoid defaults under its long-term
contracts;
- performance of third parties under its contracts and such third
parties' observance of laws and regulations;
- concentration of suppliers and customers;
- geographic concentration of facilities;
- increased competitiveness in the energy and waste
industries;
- changes in foreign currency exchange rates;
- limitations imposed by Covanta's existing indebtedness and its
ability to perform its financial obligations and guarantees and to
refinance its existing indebtedness;
- exposure to counterparty credit risk and instability of
financial institutions in connection with financing
transactions;
- the scalability of its business;
- restrictions in its certificate of incorporation and debt
documents regarding strategic alternatives;
- failures of disclosure controls and procedures and internal
controls over financial reporting;
- Covanta's and the joint ventures ability to attract and retain
talented people;
- general economic conditions in the
United States and abroad, including the availability of
credit and debt financing; and
- other risks and uncertainties affecting Covanta's businesses
as described in periodic securities filings by Covanta with
the SEC.
In addition, the current COVID-19 pandemic is significantly
impacting the national and global economy and commodity and
financial markets. The full extent and impact of the pandemic is
unknown and to date has included extreme volatility in financial
and commodity markets, a significant slowdown in economic activity,
and has raised the prospect of a global recession. The public and
private sector response has led to significant restrictions on
travel, temporary business closures, quarantines, global stock
market volatility and a general reduction in consumer and
construction activity globally. Matters outside our control
have affected our business and operations and may or may continue
to: limit travel of Company representatives to our business units
domestically and internationally; adversely affect the health and
welfare of our personnel; reduce the volume of waste materials into
our facilities and/or the price at which we are able to attract
such materials; or prevent important vendors and contractors from
performing normal and contracted activities. If significant
portions of our workforce are unable to work effectively, including
because of illness, quarantines, government actions, travel
restrictions, facility closures, social distancing requirements or
other restrictions in connection with the pandemic, our
operations could be materially impacted. It is possible that
the continued spread of COVID-19 could also further cause
disruption in our supply chains, adversely affect our business
partners, delay our construction activities or cause other
unpredictable events.
Although Covanta believes that its plans, cost estimates,
returns on investments, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, actual
results could differ materially from a projection or assumption in
any forward-looking statements. Covanta's future financial
condition and results of operations, as well as any forward-looking
statements, are subject to change and to inherent risks and
uncertainties. The forward-looking statements contained in
this press release are made only as of the date hereof and Covanta
does not have, or undertake, any obligation to update or revise any
forward-looking statements whether as a result of new information,
subsequent events or otherwise, unless otherwise required by
law.
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SOURCE Covanta Holding Corporation