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Rating Action:

Moody's downgrades Anchor Glass Container Corporation CFR to B3; outlook remains negative

30 Oct 2019

Approximately $800 million of rated debt affected

NOTE: On November 06, 2019, the press release was corrected as follows: At the end of the Press Release, the second contact was changed to Glenn Eckert. Revised release follows.

New York, October 30, 2019 -- Moody's Investors Service ("Moody's") downgraded Anchor Glass Container Corporation's ("Anchor") Corporate Family Rating to B3 from B2 and Probability of Default rating to B3-PD from B2-PD. Instrument ratings are detailed below. The ratings outlook is negative.

Downgrades:

..Issuer: Anchor Glass Container Corporation

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

.... Corporate Family Rating, Downgraded to B3 from B2

....SR SEC 1ST LIEN TERM LOAN, Downgraded to B3 (LGD3) from B2 (LGD3)

....SR SEC 2ND LIEN TERM LOAN , Downgraded to Caa2 (LGD6) from Caa1(LGD6)

Outlook Actions:

..Issuer: Anchor Glass Container Corporation

....Outlook, Remains Negative

RATINGS RATIONALE

The downgrade reflects the lack of improvement in credit metrics to a level within the B2 rating triggers and an expectation that they will not improve to that level over the next 12 to 18 months. Anchor continues to struggle to restore metrics after several extraordinary events (an explosion, a lightning strike and a fire at its facilities) and the loss of a major brand from a customer (converted into plastic). While credit metrics are expected to remain within the B3 category, free cash generation may continue to be negative depending upon the rate of commercialization of new business and benefits of various efficiency initiatives.

The negative outlook reflects the uncertainty around free cash generation going forward. Cash generation is expected to continue to be weak and dependent upon the commercialization of new business and success of efficiency initiatives since both one-time charges and insurance proceeds will be eliminated over the near term. Anchor will need to demonstrate that it can generate positive free cash flow and maintain good liquidity (including renewing the revolver) in order to stabilize the rating.

Weaknesses in Anchor's credit profile include a high concentration of sales, the mature nature of the industry and softness in end markets including negative volume trends in mass beer. Approximately 48% of the company's sales (For the year ended December 31, 2018) are generated from three customers. The majority of the company's revenue is generated in the mature US market with little exposure to faster growing and more profitable emerging markets. Weaknesses also include the company's relatively smaller size and weaker margins and free cash flow to debt than its rated competitors. Strengths in the company's credit profile include having the majority of business under long term contracts with strong cost-pass through provisions, an average relationship of 20 years with its top customers and a customer base that includes large, well-known brands with good market positions. Anchor passes all raw material costs through to the customer and hedges natural gas price fluctuations. Additionally, the US glass packaging industry is consolidated in the US with only three major players. The proximity of Anchor's plants to customer facilities supports customer relationships and diminishes the threat from competitors since it is costly to ship glass packaging more than 200-300 miles.

We expect Anchor to maintain adequate liquidity over the next 12 months. Anchor's liquidity is supported by a $120 million asset based revolver (not rated by Moody's) which expires in December 2021 and is subject to borrowing base limitations. As of June 30th, 2019, availability was approximately $83 million. Free cash flow is expected to break even over the next 12 to 15 months due to continuous recovery process from the unusual events in the prior year as well as loss of a major customer contract. Cash generation is expected to continue to be weak and dependent upon the commercialization of new business and success of efficiency initiatives since both one-time charges and business interruption proceeds will be eliminated over the near term. The only financial covenant is a springing fixed charge coverage covenant which applies if excess availability is less than the greater of (i) $7.5 million and (ii) 10% of the Line Cap in effect for 5 consecutive business days. If triggered, the minimum fixed charge coverage ratio is 1.0. Cushion under the fixed charge covenant is expected to be adequate over the horizon. The peak working capital period is in the calendar first and fourth quarter. Amortization for the 1st lien term loan is 1% annually. The term loan facility includes a mandatory cash sweep of 50%. There are no significant sources of alternate liquidity as all assets are encumbered under the credit facilities.

An upgrade is unlikely given the current weakness in Anchor's credit metrics and cash generation. However, the ratings could be upgraded if there is evidence of a sustainable improvement in credit metrics within the context of a stable operating and competitive environment and the maintenance of good liquidity. Anchor's small size relative to peers may also constrain any upgrade. Specifically, the ratings could be upgraded if funds from operations to debt increases above 9.0%, debt to EBITDA declines to below 5.8 times, and/or EBITDA to interest expense increases to above 3.0 times.

The ratings could be downgraded if the company fails to improve credit metrics and generate positive free cash flow. The ratings could also be downgraded if there is a deterioration in liquidity or in the operating and competitive environment. Specifically, the ratings could be downgraded if funds from operations to debt decreases to below 7.0%, debt to EBITDA remains above 6.5 times, and/or EBITDA to interest expense decreases to below 2.0 times.

The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass, and Plastic Containers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Tampa, Florida, Anchor Glass Container Corporation is a North American manufacturer of premium glass packaging products, serving the beer, liquor, food, beverage, ready-to-drink ("RTD") and consumer end-markets. The company operates six manufacturing facilities located in Florida, Georgia, Indiana, Minnesota, New York and Oklahoma. For the 12 months ended June 30, 2019, Anchor generated approximately $569 million in revenue. Anchor is a portfolio company of CVC Capital Partners (acquired late 2016), with a minority ownership by BA Glass. The company does not publicly disclose information.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Edward Schmidt, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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