Covanta Plans Equipment Lease Financing for NYC Project

Covanta Holding Corp. plans to borrow in the lease-financing market to buy about $110 million of equipment for a waste disposal deal with New York City, according to Chief Financial Officer Brad Helgeson.

The waste-management and renewable-energy company is seeking equipment-lease financing to fund the purchases because it has similar duration and has lower interest costs than the high-yield bond market, Helgeson said. Morristown, New Jersey-based Covanta is working with Bank of America on a portion of the investment, which will take place over three years, he said.

Depending on the tenor of the financing, “those investments we’re making are 100 to 200 basis points cheaper than the high-yield market,” Helgeson said in a July 9 telephone interview. “We need to spend a pretty significant amount of capital to purchase transportation equipment.” A basis point is 0.01 percentage point.

Covanta made a 20-year agreement with New York’s Department of Sanitation to transport and dispose of as much as 800,000 tons of solid waste annually, according to an Aug. 26 2013 statement announcing the deal. The company sold $400 million of 5.875 percent notes due 2024 in February, according to data compiled by Bloomberg. Those securities traded at 104 cents on the dollar to yield 5.34 percent on July 11, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The yield to worst of bonds in the Bloomberg U.S. dollar high-yield corporate bond index was 5.21 percent as of July 10, Bloomberg data show.

New York will pay Covanta a service fee with fixed and variable components, Helgeson wrote in a July 9 e-mail. Unlike some previous deals, the city will not share responsibility for the debt involved in the project nor will it participate in any profits from the sale of energy produced.

Covanta processes about 20 million tons of waste annually, or about 5 percent of U.S. municipal solid waste, which is combusted at a high temperature to generate steam used to produce electricity, said Jim Reilly, vice president and treasurer, at an industry conference May 13.

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