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Introducing Covanta Holding: A Cleaner Energy Company

IntroducingCovantaHolding:ACleanerEnergyCompany(Part1of16)

Covanta Holding: A Brief Introduction

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:52 pm EDT

WhyCovanta?
Wevecoveredsomeinterestingnamesintherenewableenergyspace,includingFirstSolar(FSLR),theleaderinthinfilmphotovoltaic
technology,andSunPower(SPWR),theleaderinthedistributedsolarpowersegment.SoonwellbepublishingouroverviewofSunEdison
(SUNE),whichhasalargepresenceinexecutingsolarpowerprojects.
CovantaHoldingCorporation(CVA)sitscomfortablybetweenrenewableenergyandpowerwithitsstrongpositionintheenergyfromwaste
(orEfW)segment.WhiletherearemuchlargerpeerslikeRepublicServices(RSG)andWasteManagement(WM),theirpresenceindirect
electricitygenerationfromwastecombustionislimited.WithCovanta,wecontinuetopresentourreaderswithoverviewsofinteresting
renewableenergyandpowercompanies.CovantaispartoftheVanguardExtendedMarketETF(VXF)at0.07%ofitsholdings.

CovantaHolding
Beforeturningfromwastetoenergy,Covantaspredecessor,OgdenCorporation,wasengagedinavarietyofbusinesses,includingutilities,
manufacturing,entertainment,andaviation.In1983,OgdenCorporationacquiredNorthAmericanrightstoMartinGmBHenergyfromwaste
technologyknownasincineration.Thecompanycompleteditsfirstenergyfromwasteplantin1986andalsocontinuedtoincreaseits
presenceinthemunicipalwastemanagementspace.
OgdenCorporationgraduallymovedoutofsomeofitsbusinessesandchangeditsnametoCovantaEnergyin2001toreflectits
transformationtoanenergycompany.ExposuretotheweakenergymarketinCaliforniaweakenedthecompany,anditfiledforbankruptcyin
2002.CovantaHoldingistheholdingcompanyforCovantaEnergy.DanielsonHoldingboughtCovantasenergyandwaterresources
businessinMarch2004toendthecompanysbankruptcy.
Sincethen,thecompanyhasmaintaineditsfocusontheenergyfromwastebusiness.Beforemovingontothecompanysbusinessmodel,
letshaveabrieflookatvariousbusinessmodelsandtechnologiesformunicipalwastetreatment.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part2of16)

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What Happens to Waste? The Basics of Municipal Waste Management

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:52 pm EDT

Municipalsolidwaste
Insimpleterms,municipalsolidwasteistrashorgarbagediscardedbyhouseholdsandcommercialestablishments.Municipalsolidwastecan
includenumerousitems,fromplasticbagstocansandfooditems.
Apartfrommunicipalsolidwaste,othertypesofwasteincludeindustrialwaste,medicalwaste,agriculturalwaste,andradioactivewastefrom
nuclearpowerplants.
Municipalitiesoragenciesandcompaniesappointedbymunicipalitiescollectandtransportwastefromthesourcetoprocessingorlandfill
disposalsites.

Recycling
Somerecyclablematerialssuchaspaper,glass,metals,plastics,fabrics,batteries,andelectronicwastearerecycledintonewproductsto
reduceconsumptionofadditionalenvironmentallyharmfulrawmaterials.CompaniessuchasWasteManagement(WM),WasteConnections
(WCN),andRepublicServices(RSG)havealargepresenceinwasterecycling.WasteManagement(WM)ispartofthePowerSharesS&P
500LowVolatilityETF(SPLV)with1.06%holding.

Composting
Someperishablewastesuchasfoodcanbedecomposedandrecycledasfertilizerandsoilimprovementmaterial.Theprocessisknownas
composting.Theoutputfromcompostingisgenerallyusedinorganicfarming.

Landfilling
Landfillingisstillthemostcommonmethodofwastemanagement.Collectedwasteiscompressedanddumpedinremoteareas.Landfillingis
themostcosteffectivemethodofwastedisposal,especiallyinplacesliketheUnitedStatesthathavelargeopenareas.However,poor
managementoflandfillscancauseavarietyofhealth,social,andeconomicissues.WasteManagement(WM)producespowerfromgas
trappedinsidelandfills.
Inthenextpart,welllookatenergyfromwaste,thecorecompetencyofCovantaHoldingCorporation(CVA).

IntroducingCovantaHolding:ACleanerEnergyCompany(Part3of16)

Energy from Waste: The Basics

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ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:52 pm EDT

Energyfromwaste

Inthelastpart,wesawvariousdisposalmethodsofwaste.Oursubjectcompany,CovantaHoldingCorporation(CVA),operatesinarelatively
smalldomainofenergyfromwaste(orEfW),alsoknownaswastetoenergy(orWtE).EfWisacleanerwayofwastedisposalthanthemore
populardisposalmethodoflandfilling.ThemostcommonmethodofEfWisknownasincineration.

Incineration
Incinerationissimilartotheprocessofburningfuelsinthermalpowerplants.Intraditionalthermalpowerplants,electricityisgeneratedusing
steam.Coalornaturalgasisburnedinsideboilersataveryhightemperature.Pipesfilledwithwaterarelinedupagainstthewallsofthe
boilers.Asthecoalandnaturalgasburns,thewaterinthesepipestransformsintosteam.Thesteamspinsturbines,whichinturndrive
electricitygeneration.
Similarly,inincineration,organicmaterialsuchaswasteisburnedtogeneratesteaminsideaboiler,whichinturndrivestheturbineto
generateelectricity.Covanta(CVA)handlestheentireprocess,fromcollectionandtransportationofwastetoactivitiesafterelectricity
generation.
Itspostgenerationactivitiesincludedisposalofashfromcombustion,managementofemissions,andrecoveryofmetals.Thecompanythen
sellstheserecoveredmetalsatspotpricesonthemarket,generatingadditionalrevenues.Notmanylargecompanies,includingWaste
Management(WM),RepublicServices(RSG),andWasteConnections(WCN),havealargepresenceinincineration.CVAispartofthe
iSharesRussell1000GrowthETF(IWF).

Othertechniques
TherearenumerousotherlesspopularWtEtechnologiessuchasgasification,discussedinthepreviouspart,thermaldepolymerizationthat
producessyntheticcrudeoil,andanaerobicdigestionthatproducesbiogas.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part4of16)

An Overview of Covanta Holdings Business Model

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:53 pm EDT

Covantasbusinessmodel
CovantaHoldingCorporation(CVA)generatesrevenuesinthreeways:
1.wastecollectionandservices
2.energyfromwaste
3.metalrecycling

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Wastecollectionandservices
WastecollectionandservicesisthebiggestrevenuegeneratorforCovantawithmorethan66%ofitsrevenuescomingfromthesegment.
About85%ofthesegmentsrevenuesaregeneratedfromcontractswithmunicipalities.Thisisalsothemostcompetitivesegmentwithlarger
playerssuchasWasteManagement(WM),WasteConnections(WCN),andRepublicServices(RSG)competingformarketshare.Infiscal
2014,thesegmentgenerated$1,030millioninrevenues.Municipalitiespaythecompanyforcollectingandtransportingsolidwaste.

Energyfromwaste
CovantaisanAmericanleaderinenergyfromwaste(orEfW)with46EfWfacilitiesandabout20milliontonsofwasteprocessedannually.
Thecompanyhaselectricitygenerationcapacityofmorethan1,500megawatts(orMW)andproducesmorethan10millionmegawatthours
(orMWh)ofelectricityannually.Thatsenoughtopoweraboutamillionaveragehouseholds.
MostofthecompanysEfWfacilitiesarelocatedinthenortheastUnitedStatesarounddenselypopulatedmetropolitanareas.Theelectricityis
soldathighdemandcenters.About27%ofthecompanysfiscal2014revenuescamefromthissegment.Morethan80%ofthesegments
electricityoutputiscontractedorhedged,providingstablecashflows.SinceCovantautilizescollectedwasteforelectricitygeneration,it
effectivelygetspaidforthefuel.CovantaispartoftheiSharesRussell1000GrowthETF(IWF).

Metalrecycling
Fromtheresidualwasteleftaftercombustion,Covantaproducesrecycledferrousandnonferrousmetalsandsellsthemonthemarketatspot
prices.Whilenotalargerevenuecontributor,thefactthatthemetalsareextractedfromthewastemakesitalowcost,highmarginsegment.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part5of16)

How Covanta Earns Revenues through Energy from Waste

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:53 pm EDT

Revenuemodel
CovantaHoldingCorporation(CVA)generatesitsenergyfromwaste(orEfW)revenuesinthreeways:
1.tipfee
2.servicefeeowned
3.servicefeeoperated

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Tipfee
Inthetipfeemodel,Covanta(CVA)receivesatippingfeepertonforcollectinganddisposingofwaste.Around45%ofitstotalwasteis
processedunderthismodelatthecompanys18EfWfacilities.Underthismodel,Covantareceivesonlythewastecollectionfeefromthe
clientandgenerateselectricityandmetalsrevenuesonitsown.TherisksandrewardsoftheEfWfacilityareCovantasresponsibility.

Servicefeeowned
AsofDecember2014,sixCovantafacilitiesoperatedundertheservicefee(owned)modelwitharound20%oftotalwasteprocessed.Covanta
receivesaninflationadjustedfixedoperationandmaintenancefeeforcollectinganddisposingofwaste.Covantatypicallyretains20%ofthe
electricitygeneratedfromthewasteandabout50%oftheextractedmetals(DBB).
SincetheseprojectsareownedbyCVA,debtremainsonthecompanysbooks.However,itsclientspayinterestaspartoftheservicefee.
Aftertheexpirationofacontract,thefacilitiesconverttothetipfeemodel,ortheycanremainundertheservicefeewithnewterms.

Servicefeeoperated
About35%ofCovantaswasteisprocessedundertheservicefee(operated)model.Covantaactsasacontractorformunicipalclients.The
facilitiesareownedbyclients,andCovantareceivesaservicefee.Justlikeintheservicefee(owned)model,electricityandmetalrevenues
aresharedbetweenclientsandCovanta.
TheEfWmodeldifferentiatesCovantafromlargerpeerssuchasWasteManagement(WM),WasteConnections(WCN),andRepublic
Services(RSG).CovantaispartoftheiSharesRussell1000GrowthETF(IWF).

IntroducingCovantaHolding:ACleanerEnergyCompany(Part6of16)

Covanta Holdings Northeast US Facilities

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:53 pm EDT

SoutheasternMassachusettsWestWareham,MA
CovantaHoldingCorporations(CVA)southeasternMassachusettsfacilityisa2,700tonsperday,78megawatt(orMW)plantservicing60
communitiesaroundCapeCodandthemetropolitanBostonvicinity.Theplantemploysatechnologycalledrefusederivedfuels(orRDF).In
RDF,municipalsolidwasteisshreddedanddehydratedforuseinaboilerforcombustion.Anagreementforsaleofproducedenergywitha
subsidiaryofEversourceEnergy(ES)willexpirein2017.

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DelawareValleyChester,PA
CovantaHolding(CVA)purchaseditsChester,Pennsylvania,projectfromGEEnergyFinancialServices(GE)in2012.Theplanthasa
capacitytoprocessaround2,700tonsofwasteperdayandanelectricitygenerationcapacityof87megawatts(orMW).AtlanticCityElectric
Companyisthepurchaserofpowerfromtheproject.Thecontractforwasteservicewillexpirein2017,whiletheoneforenergysupplywill
expirein2016.

HempsteadWestbury,NewYork
Operatingsince1989,theHempsteadplantisoneofCovantasoldestincinerationfacilities.This2,500tonperday,72MWfacilityislocated
nearWestbury,NewYork.Itswasteservicecontractsareexpiringin2034,whileitsenergysupplycontractwiththeLongIslandPower
Authorityisexpiringin2027.

EssexCountryNewark,NewJersey
Covantas2,277tonsperday,66MWfacilityserves22municipalitiesinEssexCounty,NewJersey.Itscontractforwasteserviceisexpiringin
2022.Electricitygeneratedfromtheprojectissoldinamerchantmarketwithoutanycontract.FirstEnergy(FE)andPublicServices
EnterprisesGroup(PEG)aretheutilities(XLU)operatinginNewJersey.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part7of16)

Covanta Holdings Major Service FeeBased Facilities

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:53 pm EDT

FairfaxCounty,Virginia
Operatingsince1990,the3,000tonsperday(ortpd),93megawatt(orMW)facilityinFairfaxCounty,Virginia,isthelargestenergyfrom
waste(orEfW)facilityinCovantaHoldingCorporations(CVA)portfolio.Thefacilityproducesenergyformorethan80,000homes.Covantas
wasteservicecontractwithsubjectmunicipalitiesexpiresin2021.
Thefacilitysellsgeneratedelectricityonthemerchantmarket.Thefacilitycollectsanddisposesofwasteformorethan900,000homesinthe
Washington,DC,suburbsofFairfaxCounty.

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Honolulu,Hawaii
CovantahasbeenoperatingatafacilityinOahu,Honolulu,since1993.ThefacilityisownedbytheCityandtheCountyofHonolulu.The
facilityprocesses3,000tonsofwasteperdayandrunsa90MWelectricitygenerationplant.
Honoluluhasmorethan850,000residentsandmorethansixmilliontouristsayear.ThewasteservicecontractwithHonolululastsuntil
2032,whiletheelectricsupplycontractwithHawaiianElectricIndustries(HE)expiresin2033.

Miami-Dade,Florida
CovantaoperatestheMiamiDadefacilityinFloridaasacontractorundertheservicefeeoperatormodel.Thefacilityprocesses3,000tonsof
wasteperdaytoruna77MWpowerplant.Thecontractforthefacilityexpiresin2023.Theplantsellselectricityatmarketrates.NextEra
Energy(NEE)andDukeEnergy(DUK)aretheutilities(XLU)thatoperateinFlorida.

PinellasCounty,Florida
InDecember2014,Covantaenteredintoanagreementtoruna3,150tpdwasterecoveryfacilityinPinellasCounty,Florida,foratenyear
term.Thepowerplanthasacapacityof75MW.Theplantwillgenerateenoughelectricitytopower40,000homes.Inaddition,theplantis
expectedtorecycle26,000tonsofmetalsperyear.
CovantasothernotableservicefeebasedfacilitiesincludeMontgomeryCounty,Maryland(1,800tpd,63.4MW),LeeCounty,Florida(1,836
tpd,57.3MW),HillsboroughCounty,Florida(1,800tpd,46.5MW),andLongBeach,California(1,380tpd,36MW).

IntroducingCovantaHolding:ACleanerEnergyCompany(Part8of16)

Covanta Holdings International Operations

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:54 pm EDT

Dublinfacility
InSeptember2014,CovantaHoldingsCorporation(CVA)enteredintoacontracttobuild,own,andoperatea600,000tonsperyear,58
megawatt(orMW)energyfromwaste(orEfW)facilityservingthecityofDublininIreland.Thecontractisfor45yearsthrough2062.
Thecompanystartedconstructionofthefacilityinlate2014andexpectsittocomeintooperationbylate2017.Totalinvestmentintheproject
isexpectedtobe500euros,outofwhich125millioneuroswillbethroughequityfromCovanta.Theremaining375euroswillberaised
throughnonrecoursedebt.
Undernonrecoursedebt,borrowerscanseizetheunderlyingcollateral,theDublinplant,butcantseekfurthercompensationfromCovantaif
thecollateraldoesntfullycovertheoutstandingdebt.Covantaexpectstofundtheequityportionthroughitsowncashheldinoffshore
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accounts.

China
InChina(FXI),Covantaoperatesthreeprojects,twoofthemthroughajointventurecalledChongqingSanfengCovanta.TheChengduproject
isan1,800tpd,36MWfacilityinwhichCovantahas49%ownershipinterest.Thewasteservicecontractexpiresin2033,whenownershipof
thefacilitywillbetransferredtothehostmunicipality.Termsofthecontractarerenewedannually.Electricitygeneratedfromtheprojectissold
intheopenmarket.
TheTongxingprojectisa1,200tpd,24MWfacilitywithawasteserviceagreementineffectuntil2027.Covantahas16%equityinterestin
theproject.TheTaixingprojectisa350MWfacilityinwhichCovantaholds85%equityinterest.Thewasteservicecontractexpiresin2034.
Theprojectgeneratessteamforindustrialuse.Theplantssteamcapacityis348tonsperhour.

Italy
Covantaholdsa13%stakeinajointventurethatownsandoperatesthe500tpd,18MWTrezzoprojectinItaly(EWI).Thewasteserviceand
energycontractswillexpirein2023.
NRGEnergy(NRG)andNextEraEnergy(NEE)aretwoutilitieswithalargepresenceintherenewableenergysegmentinwhichCovanta
operates.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part9of16)

Covanta Holdings Peers: Who Are They?

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:54 pm EDT

WasteManagement
WasteManagement(WM),basedinHouston,Texas,isthebiggestsolidwastemanagementcompanyintheUnitedStates.Thecompany
operates146recyclingplants,16wastetoenergyplants,111landfillgasificationprojects,andsixindependentpowerplants.Ithandles8.5
milliontonsofwasteannually,overfourtimestheamountthatCovantaHoldingCorporation(CVA)handles.Thecompanygenerated$14
billioninrevenuesinfiscal2014.

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RepublicServices
RepublicServices(RSG),basedinPhoenix,Arizona,isthesecondlargestplayerinthesolidwastemanagementspace.WMandRSG
togetherhandlehalfofAmericassolidwaste.Microsoft(MSFT)founderBillGatesisthecompanyslargestshareholder.
RSGservesmorethan2,700municipalitiesandcommunitiesintheUnitedStates.Thecompanyhandles5milliontonsofwasteannually,
with2.4milliontonsofthatusedinternallyformaterialrecovery.Theremainingissoldtothirdpartiesforfurtherprocessing.Thecompanyalso
operates189landfills.In2014,RSGacquiredTervita,LLC,acompanythatspecializesinoilfieldwastemanagement.

Stericycle
Stericycle(SRCL)isaspecializedwastemanagementcompanythatcollects,transports,processes,anddisposesofmedicalwaste,
pharmaceuticals,regulatedwaste,andotherhazardouswaste.SRCListhemostinternationalAmericanwastemanagementcompany,
derivingaround20%ofits$2.55billionrevenuesfromforeignmarkets.SRCLhasa0.22%shareinthePowerSharesQQQTrust,Series1
ETF(QQQ).

WasteConnections
WasteConnections(WCN)providessolidwastecollection,transfer,disposal,andrecyclingofsolidwastein31states.Thecompanytargets
secondarymarketssuchassmallercommunitiesandtownsinordertoavoidcompetitioninlargeurbanmarkets.Thecompanyalsoprovides
oilfieldwastedisposalservicesandrailcargoservicesinthePacificNorthwest.Thecompanyreported$2.1billioninrevenuesinfiscal2014.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part10of16)

Why Covanta Lags in Growth Compared to Its Major Peers

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:54 pm EDT

Pharmaceuticalandhealthcarewaste
WhileCovantaHoldingCorporation(CVA)istheleaderinenergyfromwaste,ithasnopresenceinpharmaceuticalandhealthcarewaste
management.ThisisdominatedbyStericycle(SRCL).
Theaverageageofthepopulationindevelopedcountries,includingtheUnitedStates,hasbeenincreasingoverthelastfewdecades.An
agingpopulationrequiresmorehealthcare,creatingmoreopportunitiesforcompaniesthatmanagemedicalandpharmaceuticalwaste.The
pressuretoreducehealthcarecostshasalsohighlightedtheimportanceofmedicalwastemanagement.Healthcareproviderscansave
substantiallybyreducingemployeeexposuretomedicalwaste.

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Explorationandproductionwaste
TherecentshalegasboomhasledtoasubstantialincreaseinactivitiesintheAmericanoilandgassector.USnaturalgasproductionhas
increasedfrom19.5trillioncubicfeetin2004to27.3trillioncubicfeetin2014.AccordingtotheEIA(U.S.EnergyInformationAdministration),
crudeoilproductionhasincreasedfrom5.4millionbarrelsperdayin2004to8.7millionbarrelsperdayin2014andto9.5millionbarrelsper
dayinMarch2015.AccordingtotheBPStatisticalReviewofWorldEnergypublishedlastweek,theUnitedStatessurpassedSaudiArabiain
2014asthebiggestoilproducerintheworld.
Withincreasedactivitiesinthesector,therequirementforexplorationandproduction(orE&P)wastecollectionanddisposalhasincreased.
Majorlargeplayersintheindustry,includingWasteManagement(WM),RepublicServices(RSG),andWasteConnection(WCN),offerE&P
wastemanagementservices.However,CVAhasntventuredintothedomain,limitingthecompanysgrowthpotential.

Lackofinorganicgrowth
Sofar,Covantahasfocusedonorganicgrowthandsomeinorganicgrowthbyacquiringstandaloneprojects.Ontheotherhand,Republic
Serviceshasgrownmostlyinorganically.OneofitsmajoracquisitionswasAlliedWastein2008.WasteManagementrecentlyacquired
DeffenbaughIndustries,awastemanagementcompanyaboutthesizeofCVA.WithWMandRSGcontrollinghalfoftheindustry,CVAmay
beanacquisitiontargetinthefuture.Thecompanysgrowthhaslaggedbehindallitsmajorpeersforthelastfiveyears.CVAispartofthe
iSharesRussell1000GrowthETF(IWF).

IntroducingCovantaHolding:ACleanerEnergyCompany(Part11of16)

Covanta Holdings Revenues Rise for the First Time in 3 Years

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:55 pm EDT

Wasteandservicerevenues
Afterremainingstagnantforthreeyears,CovantaHoldingCorporations(CVA)wasteandservicesrevenuesincreasedby$24million,or
about2.4%,to$1.032billioninfiscal2014.A$17millionrevenuelossduetoexpiredcontractswasmorethanoffsetbya$14millionincrease
insamestorerevenues,orrevenuesfromcontractsrunningforatleastoneyear,andan$8millionincreaseinrevenuesfromnewcontracts.
RepublicServices(RSG)andWasteConnections(WCN)reportedhigherwastecollectionrevenuesduringtheyear.WasteManagements
(WM)collectionrevenuesremainedflat.
CovantaswasteandservicesrevenuesfromnonEfW(energyfromwaste)projectsincreasedby$18million,asnewwastetransferstations
acquiredbythecompanyinlate2013contributedtorevenues.
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Energyrevenues
CovantaHoldingCorporations(CVA)energyrevenueshavegrownforthesecondstraightyear.Energyrevenuescameinat$460millionin
fiscal2014,$29millionmorethanthepreviousyear.Higherenergypricesduring1Q14duetounusuallycoldweatherandhigherelectricity
productionresultedintheincreaseinenergyrevenues.TheTongxingfacilityinChinareportedanincreaseof$8millioninsteamrevenues.

Recycledmetals
Covantasrevenuesinthemetalssegmentroseby$20millionto$93millioninfiscal2014,primarilyduetoahighervolumeofmetals
recoveredintherecyclingprocess.Thecompanysoldatotalof370tonsofrecoveredmetalsinfiscal2014,39tonsmorethanitdidinfiscal
2013.NotethattheenergyandmetalsrevenuesrepresentonlyCovantasshare.CVAispartoftheiSharesRussell1000ValueETF(IWD).

IntroducingCovantaHolding:ACleanerEnergyCompany(Part12of16)

Why Is Covanta Holdings Cost of Sales Rising?

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:55 pm EDT

Operatingexpenses
WhileCovantaHoldingCorporations(CVA)revenuesincreasedmarginallyduringfiscal2014,costofsalessawasubstantialuptickduringthe
year.Thecompanysoperatingexpensesincreasedby$130million,or9.2%,to$1.538billionagainstrevenuegrowthof3.2%.
Plantoperatingexpenseswerethebiggestcontributortotherise,increasingby$63millionto$1.055billion.Theriseinplantoperating
expenseswasduetohigherfuelcostsin1Q14andhigheremployeecompensationexpenses.Thewastetransferstationsacquiredin4Q13
alsoaddeda$15millionriseinoperatingexpenses.
Generalandadministrativeexpensesroseby$15millionto$97million.Thecompanyreported$64millioninthefollowingwriteoffs:
$14millionwriteoffoffwhenthecompanysolditsinsurancebusinessbelowbookvalue
$34millionwriteoffrelatedtoimpairmentoftangibleassets
$16millionwriteoffrelatedtocontractintangibles

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Operatingincome
Operatingincomeiscalculatedasrevenuesminusoperatingexpenses.Covantasoperatingincomefellto$144million,or8.6%ofrevenues,
infiscal2014,from$222million,or13.6%ofrevenues,infiscal2013.ThisisthesecondstraightyearthatCVAsoperatingincomehas
dropped.AllofCVAsmajorpeers,includingWasteManagement(WM),Stericycle(SRCL),andRepublicServices(RSG),havereported
increasesinoperatingincomesduringtheyear.WM,SRCL,andRSGarecomponentsoftheS&P500Index(SPY).

AdjustedEBITDA
CVAsadjustedEBITDA(earningsbeforeinterest,taxes,depreciation,andamortization)fellto$474million,or28.2%ofrevenues,infiscal
2014,from$494million,or30.3%ofrevenues,infiscal2013.ThefallinadjustedEBITDAwaslessseverecomparedtothefallinoperating
income,sinceEBITDAcalculationaddsbackwriteoffsandothernoncashexpenses.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part13of16)

Covanta Continued to Post Losses in Fiscal 2014

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:56 pm EDT

Netlosses
Asaresultoftheincreasedcostswesawinthepreviouspart,CovantaHoldingCorporation(CVA)continuedtopostlossesinfiscal2014.
Thiswasthecompanyssecondstraightyearofnetlosses.
Covantascontinuingoperations,excludingthesoldoffinsurancebusiness,swungtoaloss,posting$2millioninnetlossesinfiscal2014
comparedto$43millioninnetincomeinfiscal2013.However,overallnetlosseswerelowerat$2million,or$0.015pershare,infiscal2014
comparedto$9million,or$0.07pershare,infiscal2013,asthediscountedinsurancesegmentposted$52millioninlossesinfiscal2013.

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Dividendhistory
Inspiteofcontinuedlosses,Covantaincreaseditsquarterlydividendpaymentto$0.25persharein3Q14,from$0.18persharein2Q14.The
companyboastsattractivedividendyieldof4.5%,higherthanWasteManagement(WM),RepublicServices(RSG),andWasteConnection
(WCN)at3.2%,2.8%,and1.1%,respectively.Withalowbeta,ormeasureofsystematicrisk,thestockcanbeanattractiveplayfor
conservativeinvestors.CVAispartoftheiSharesRussell1000GrowthETF(IWF).

Cashflows
Despitenetlosses,Covantapostedahealthyoperatingcashflowof$341millioninfiscal2014,comparedto$316millioninfiscal2013.The
operatingcashflowwassupportedbyfavorablechangesinworkingcapital.Thecompanyspent$216milliononcapitalexpenditures,resulting
infreecashflowof$125millioninfiscal2014.Thecompanygeneratedfreecashflowof$128millioninfiscal2013.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part14of16)

Covanta Holdings Leverage: Is It Too Much to Handle?

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:56 pm EDT

Debtprofile
AsofDecember31,2014,CovantaHoldingCorporation(CVA)hadatotaldebtof$2.22billion,marginallydownfromthepreviousyears
$2.23billion.Covantaissued$400millioninnewdebtinfiscal2014andprepaida$595milliontermloan.Thecompanyraised$60millionin
newdebtfortheDublinfacilityinfiscal2014.
Overall,about90%ofCVAstotaldebtwasintheformofcorporatedebt.Theremainingwasintheformofprojectfinancing.Debtmaturities
arefairlyspreadoutwithnomajormaturitycomingupbefore2019,when$356million,includinga$145millionrevolvingcreditfacility,comes
due.Beyond2019,$1.75billionworthofdebtwillmature.

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Creditratingprofile
Moodys(MCO)hasratedCovantaHoldingCorporation(CVA)atBa2withastableoutlook.Theratingisaspeculativegraderating.Its
supportedbyconsistentcashflowsandcreditmetricsaswellasagoodtrackrecordofdealingwithcreditworthycounterparties.Theratingis
constrainedbyCVAsleveragedcapitalstructure,agingfleet,increasingoperatingexpenses,andlackofgrowth.
CVAsmajorpeersareratedatinvestmentgradebyratingagencies.WasteManagement(WM)isratedatBaa2/StablebyMoodysand
A/StablebyS&P.RepublicServices(RSG)isratedatBaa3/StablebyMoodysandBBB+/StablebyS&P.Stericycle(SRCL)isratedat
A/StablebyS&P.WasteConnectionsisratedatBBB+/StablebyS&P.

Liquidity
Covantahadtotalavailableliquidityof$784millionasofDecember31,2014.Ofthatamount,$91millionwasincashandtherestwasinthe
formofavailablecreditlines.Theliquiditywassufficienttohelpthecompanycontinueoperationsatleastforthenext12months.CVAispart
oftheiSharesRussell1000GrowthETF(IWF).

IntroducingCovantaHolding:ACleanerEnergyCompany(Part15of16)

Covanta Holding is Holding Steady on Stock Price This Year

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:56 pm EDT

CovantaHoldingsstockprice
BeforesummingupouranalysisofCovantaHoldingCorporation(CVA),letshavealookattheperformanceofitsstockpricesincethe
beginningof2015.
CovantaHoldingCorporation(CVA)hasunderperformedthebroadermarketsincethebeginningof2015.WhilethebroadbasedSPDRS&P
500(SPY)indexhasrisenby3.4%sincethebeginningoftheyearuntilJune24,2015,CVAhasremainedlargelysteady,postingmarginal
0.2%returns.Butifyouincludedividends,CVAstotalreturnwouldbehigherthanstockreturnsbutstilllowerthanbroadmarketreturns.
WhileCVAstockfellduringtheearlypartoftheyear,itdidrecover.Anotherfallcameafterthecompanysdisappointing1Q15results,which
werelargelyweakerthananalystsexpectations.Thestockhasbeenabletorecoverafterthataswell.

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Peerperformance
WasteConnections(WCN)hasbeenthebestperformerinthesectorsofarin2015.WCNstockpricehasrisenmorethan8%,goingup
steadilyduring1Q15.Thestockfellafterthecompanys1Q15results,butitrecovered,asyoucanseeintheabovegraph.WCNistheonly
majorstockinthesectorthatisoutperformingthebroadmarket.
Stericycle(SRCL)hasposted3.1%returnssincethebeginningof2015.Partoftheearlygainspostedbythecompanywereerasedafterthe
earningsmissof1Q15.
RepublicServices(RSG)hasbeentradinginanarrowrangesincethebeginningoftheyear.Ithaslostaround1.1%throughJune24.
WasteManagement(WM)hasbeenonalosingstreakin2Q15,morethanoffsettingitsearlygains.Thestockhasfallen7.5%sincethestart
oftheyear.

IntroducingCovantaHolding:ACleanerEnergyCompany(Part16of16)

Is Covanta Holding a Good Buy?

ByMayurSontakke,FRMDisclosure Jun 29, 2015 1:56 pm EDT

Ingoodcompany
CovantaHoldingCorporation(CVA)operatesinanessentialspace.Thewastemanagementindustryisalowriskindustrywithlargely
foreseeablecashflowsfromcontractswithmunicipalities.ThewastemanagementindustryisdominatedbyWasteManagement(WM)and
RepublicServices(RSG),togethercoveringhalfoftheindustry.
CovantaHoldings,with5%share,isasmallplayerwithlimitedavenuestogrow.Thecompanyisalsofinanciallyweakerthanitslargerpeers
thatallhaveinvestmentgraderating.

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Findingitsownplace
Covantaiscertainlydifferentfromitspeers,sinceithasalargepresenceintheenergyfromwastesegment.However,thecompanysenergy
segmentlargelydependsonwasteservicesforfuel.Sothefateofthecompanysenergybusinessisheavilyentangledwithwasteservices.
Thewasteservicessegmentishighlycompetitiveamongallthemajorplayersthatoperateinit.
Othermajorplayershavediversifiedintoindustrialandexplorationandproduction(E&P)waste.Stericycle(SRCL)handlesnichehealthcare
waste.Incomparison,Covantaswasteservicesbusinessislargelydependentonmunicipalsolidwaste(orMSW).
TheentrybarriersforMSWcollectionandtransportationarerelativelylowercomparedtothoseforE&Pandhealthcarewaste.Also,growth
opportunitiesintheMSWspacearelimited,asitslinkedprimarilytopopulationgrowth,whichissubduedindevelopedeconomies,including
theUnitedStates.

Thepositives
CovantaHoldingCorporation(CVA)generatespredictablecashflows,whichoffersecurity.Withhighdividendyieldandincreasingquarterly
dividends,CVAisanattractivestockfordividendseekingconservativeinvestors.Whilethecompanyishighlyleveraged,mostofthedebtis
maturingafter2019,whichwillgivethecompanysomebreathingspace.CVAispartoftheiSharesRussell1000GrowthETF(IWF).

TheRealistDiscussions
2013MarketRealist,Inc.

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