Anchor Glass Container Corp. Downgraded To 'CCC+' On Weak Credit Metrics, Macro Challenges; Outlook Negative

  • We expect U.S.-based glass packaging producer Anchor Glass Container Corp.'s negative free cash flow generation to continue during the next 12 months as the company recovers from the lingering effects of production disruptions in 2018 and invests in efficiency improvements, all while navigating declining secular mega-beer consumption and a broader challenged macro environment.
  • We are lowering our issuer credit rating on Anchor Glass to 'CCC+' from 'B-'. The outlook is negative.
  • At the same time, we are lowering our issue-level rating on the company's $650 million first-lien term loan to 'CCC+' from 'B-' with a '4' recovery rating. And we are lowering our issue-level rating on the company's $150 million second-lien term loan to 'CCC-' from 'CCC' with a '6' recovery rating.
  • The negative outlook reflects our expectation that given weakening glass container demand, Anchor Glass will continue to generate negative cash flow while remaining highly leveraged at approximately 10x over the forecast period. This would require a draw on its asset-based lending (ABL) facility to fund interest coverage and capital spending needs.
NEW YORK (S&P Global Ratings) Sept. 5, 2019--S&P Global Ratings today took the rating actions listed above. The downgrade reflects our belief that Anchor Glass' capital structure is unsustainable given continued negative free cash flow generation and elevated leverage, along with challenged growth prospects for glass packaging. Though we expect ABL availability will allow Anchor Glass to maintain adequate liquidity over the next 12 months, negative cash flows stemming from high debt burden and planned capital expenditures (capex) will stress liquidity over time in our view. We expect that these factors, with high leverage, will make it increasingly difficult for Anchor Glass to service its debt in the long term.
The negative outlook on Anchor Glass reflects our expectation that liquidity will remain adequate over the next 12 months but will become more constrained given its negative cash flow generation as a result of the capex-heavy nature of the business, a challenged macro environment, and a large interest debt burden. Our outlook also reflects our expectation that Anchor's capital structure will remain unsustainable given our forecast that leverage will remain close to 10x and interest coverage will be weak.
We could lower our ratings on Anchor if cash flow generation worsens more than we forecast, increasing debt on the ABL and limiting further liquidity sources. This could occur, for example, following a continued downturn in the company's end markets or its inability to renegotiate with key customers, eroding operating performance and continuing negative free cash generation. Also, we could lower our ratings if Anchor fails to extend the maturity of its ABL facility, maturing in December 2021, in a timely manner.
While unlikely over the next 12 months, we could revise our outlook to stable if Anchor sustains positive cash generation. This could happen as a result of Anchor meaningfully improving operations by expanding its customer base and EBITDA margins by implementing more efficient operations, leading to leverage well below 8x on a sustained basis. Also, Anchor would need to successfully extend the maturity on its ABL facility.
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