Fitch upgrades Luna 2.5 (Urbaser) to B+; outlook positive
Fitch upgraded Luna 2.5 (Urbaser) to a 'B+' rating and assigned a positive outlook.
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04:32:02 PM UTC
SquawkNews
The following is a press release from Fitch Ratings: Fitch Ratings-Madrid-07 October 2026: Fitch Ratings has upgraded Luna 2.5 S.a.r.l.'s (Urbaser) Issuer Default Rating to 'B+' from 'B' and senior secured rating to 'BB' from 'BB-', with an unchanged Recovery Rating of 'RR2'. The Outlook on the IDR is Positive. The upgrade reflects the material improvement in the group's capital structure following the acquisition of Urbaser by funds affiliated with Blackstone and EQT. In the context of the acquisition, the approximately EUR1 billion holdco payment-in-kind (PIK) notes issued at the controlling entity Luna 1.5 in August 2025, which Fitch consolidated within Urbaser's credit metrics, were redeemed in full at closing with equity contributed by the new sponsors. The Positive Outlook reflects our expectation that Urbaser's EBITDA net leverage will fall below our 5.5x positive sensitivity by 2028, from slightly below 6x in 2026, together with our view that Urbaser's business risk has mildly improved following the carve-out of the Argentinian operations. Key Rating Drivers PIK Repayment Drives Upgrade: The equity-funded repayment of the holdco PIK notes removes around one-quarter of Fitch-defined debt from the company's rating perimeter and reverses the key driver of the August 2025 multiple-notch downgrade. For 2026 we forecast EBITDA net leverage at 5.9x, well below our previous rating case expectation (6.7x) and EBITDA interest coverage at 2.6x (from 2.1x in our prior case) based on the removal of the cash interest we assumed on the toggle notes. Positive Outlook on Expected Deleverage: Urbaser is well positioned within our rating sensitivities at 'B+'. The Positive Outlook reflects our expectation of a gradual reduction in leverage below 5.5x by 2028. We expect free cash flow (FCF) after acquisitions to be negative 5% of revenue, but our forecasts for 2026-2029 reflect earnings-driven deleveraging that offsets rising net debt. We expect strong EBITDA growth (about 10% a year), driven by inflation indexation of the EUR15.3 billion order backlog (excluding Argentina), contract renewals and new tenders and bolt-on acquisitions. Further positive rating action will require profitability improvement embedded in our forecasts. New Sponsors' Financial Policy Key: We see the new sponsors' decision to repay the holdco PIK notes with equity as positive, marking a departure from the aggressive dividend recapitalizations that drove the multi-notch downgrade in 2025. Our current rating case assumes no material dividend distributions and bolt-on M&A remaining contingent on Urbaser's deleveraging. We do not have full visibility on the new owners' business strategy and financial policy for Urbaser, but an upgrade would also require an ongoing supportive attitude from the new sponsors. Large dividend distributions or debt-funded M&A transactions would eliminate positive rating pressure. Growth Ambitions Could Consume Headroom: Our forecasts include net inve
04:32:13 PM UTC
SquawkNews
We expect existing receivables factoring facilities of EUR85 million to remain during and after distress without requiring alternative funding at same level. This assumption is driven by the granularity and strong credit quality of the group's client base (i.e. public municipalities) in Spain. Our estimates of creditor claims include total senior debt claims at EUR3.3 billion, which includes its EUR1.5 billion senior secured term loan B (TLB), EUR1 billion of senior secured notes (SSN), a fully drawn EUR0.5 billion senior secured revolving credit facility that ranks pari passu with the senior debt claims, and EUR0.2 billion of other secured debt (largely project finance). We also add EUR110 million of unsecured claims. Based on the capital structure, our waterfall analysis generates a recovery for first-lien secured debt in the 'RR2' category, leading to a 'BB' rating for the SSN and TLB. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA net leverage above 6.2x and/or EBITDA gross leverage above 6.5x on a sustained basis - EBITDA interest coverage below 2.2x on a sustained basis - Further extraordinary dividend distributions - A material shift in the business mix towards a lower contracted profile or higher-risk activities (e.g. industrial waste) or adverse divestments weakening current business profile could lead Fitch to review debt capacity for the rating Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - EBITDA net leverage below 5.5x and/or EBITDA gross leverage below 5.9x on a sustained basis - EBITDA interest coverage above 2.7x on a sustained basis - Neutral to positive FCF after dividends Liquidity and Debt Structure Luna 2.5 reported EUR173 million of cash at end June 2026 (excluding Argentina but before usual adjustments made by Fitch). This, together with a its available committed RCF of EUR552 million maturing in 5.5 years, will cover negative FCF (after dividends) in the next two years, expected to be around EUR150 million a year. Urbaser refinanced most of its debt in 2025, extending maturities to June/July 2032 with bullet repayment. Annual debt maturities over the next years are modest, limiting near-term refinancing risk. Issuer Profile Luna 2.5 is the holdco of Urbaser that holds the senior secured instruments. Urbaser is a leading Spanish environmental services company. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among t