Anchor Glass 2Q18 EBITDA falls 24% due to fire; execs seek Snapple replacement

Anchor Glass Container’s 2Q18 EBITDA fell 24% year-over-year, while revenue also softened by 5%, said two sources familiar with the matter. The company attributed the declines to a fire at one of its plants in May, and said the earnings impact from that event should be isolated to 2Q.

The CVC Capital Partners-owned company’s loans eased lower after the earnings report, which showed unexpectedly high SG&A costs, one of the sources said. Furthermore, the company on 3 August entered into a settlement with the US Department of Justice and the Environmental Protection Agency for a USD 1.1m fine and USD 600,000 in mitigation costs related to alleged Clean Air Act violations.

Looking ahead, the company’s earnings are expected to remain under pressure as Dr Pepper Snapple Group, one of its main customers, transitions to more plastic bottles rather than glass.

The company generated adjusted EBITDA of approximately USD 33m in 2Q18, compared to USD 43m in 2Q17, a third source said. The results bring LTM pro forma credit agreement adjusted EBITDA to around USD 126m, putting leverage at 5.1x through the first lien and 6.3x total, before accounting for any revolver borrowings.

Anchor’s USD 647m Libor+ 275bps (1% floor) TLB due 2023 is quoted in the 88/89.64 context, down from 90.19/91.64 at the end of July, but up from a low of 87.46/88.96 on 17 August, according to Markit. Its USD 150m L+ 775bps (1% floor) second lien TL due 2024 moved down to 62.25/65.375, from 64/69 before the earnings, but have since climbed back up over a point to 63.75/65.625.

During 2Q, volumes fell 10%, while prices increased by 5% compared to 2Q17, sources said. SG&A accounted for 15% of the sales, which sources qualified as relatively high.

“If sales are weak, SG&A is one thing that is in their own control so it’s worrying that it was so high,” one of the sources said.

In February, Snapple announced that the beverage company will seek packaging from plastic sources, rather than glass. For 1Q18, the Snapple contract was worth roughly USD 30m in quarterly revenue to Anchor, roughly 22% of the issuer’s USD 135m 1Q18 revenue, sources said.

Anchor’s management team said they are looking to replace the revenue from Snapple with a higher-margin business.

“I think you can fix and replace some of the volumes that are lost [from Snapple], but I don’t know what they’re going to be able to replace it with that’s going to sustain the current capital structure. I don’t know if it will be enough,” one of the lenders said.

CVC bought Anchor in late 2016 for over USD 1bn, from former sponsor KPS Capital Partners, with the help of a Credit Suisse-led first and second lien loan facility. Anchor repriced the first lien in July 2017.

Anchor did not respond to requests for comment. CVC declined comment.

2018 Debtwire

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