Anchor Glass discloses 3Q EBITDA growth and strong liquidity, but leverage remains high ahead of Snapple roll-off

Anchor Glass reported 3Q20 earnings and liquidity that outperformed expectations, according to two sources familiar with the matter. However, the capital structure remains at distressed levels as leverage is elevated and a key contract is set to roll off at the end of the year, the sources said.  

The USD 647m Libor+ 275bps first lien term loan due 2023 gained three points after the earnings report on 29 October, to quotes in the 74.5/77.3 context from 71.6/73.7 on 28 October, according to Markit. The loan gained further since then, to quotes in the 79.2/81.1 context today.  

The USD 150m Libor+ 775bps second lien term loan due 2024 is quoted at 38.8/41.9, up from 37.719/40.719 before the earnings report, according to Markit.  

The CVC Capital Partners-owned glass packaging producer reported USD 37.9m of EBITDA for the quarter, up from USD 25.2m in 3Q19, the sources said. Revenue in the period totaled USD 164.5m compared to USD 141.3m for the same period last year. 

Anchor’s win-back contract with Dr Pepper Snapple Group is set to expire in 2020, as Snapple partially transitions to plastic bottles from glass bottles, as reported. The company has signed on 10 to 15 new customers, but the new volumes have not yet replaced the volume loss expected from the expiration of the Snapple contract, one of the sources said.  

If the company doesn’t fully replace the exiting Snapple volumes, EBITDA will likely fall and leverage will increase, sources said. One source predicted that on a best-case basis with the current backlog, annual EBITDA will decline to the USD 110m area, from the current LTM level of USD 129.5m.  

As of 30 September, net first lien leverage comes to 4.87x, while net total leverage is 6.22x, one of the sources said.

Liquidity at quarter-end was USD 122.2m via USD 17.2m of cash and an undrawn USD 105m ABL due 2023, after the company paid off its revolver borrowings during the quarter, the sources said.  

To alleviate concerns over revolver availability, in January, the company extended its ABL due 2021 by two years to 2023, while reducing the size to USD 105m. 

The company generated USD 9m of free cash flow during 3Q, one of the sources said.  

Meanwhile, in October, Anchor won a settlement against Pabst Brewing Company in which the court awarded Anchor more than USD 19m in damages for a breach of contract by Pabst. 

Also last month, Anchor completed its Dutch auction in which lenders exchanged USD 83m of second lien term loans into USD 60m of a new first lien term loan. Moody’s and S&P assigned Caa1/CCC+ ratings, respectively, to the new term loan.  

Anchor Glass did not respond to a request for comment. CVC declined to comment.  

2020 Debtwire

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