Anchor Glass: Downgraded By S&P

On September 5, S&P Global Ratings downgraded packaging company Anchor Glass Container Corp to CCC+. That’s bad news for non-traded BDC Business Development Corporation of America (BDCA), which has a $20.0mn position in the company’s 2024 second lien debt. S&P reduced the rating on that debt to CCC-.

As of June 2019, BDCA had discounted its debt position by (30%). However, this is a traded loan and the current price is at 50% of par, suggesting an unrealized depreciation is coming in the IIIQ 2019 of (20%) or about ($4mn).

Judging by what S&P is saying about the financial performance, cash flow and leverage at Anchor Glass that may be the least of BDCA’s problems. If the company files for bankruptcy or restructures, there is $2.0mn+ in annual investment income at risk for BDCA. Last time we checked (two seconds ago) BDCA’s annualized Net Investment Income Per Share was just under $110mn. In these situations a 100% write-off of junior debt is possible, so a material Realized Loss is possible.

Given that debt to EBITDA is over 10x; capex requirements are heavy and the economic backdrop is not favorable, the odds of things going wrong seem high. However, according to S&P, the company – thanks to an asset based Revolver – has no immediate liquidity problems so this is likely to be a slow burn.