Anchor Glass Container Corp. was upgraded on Oct. 15 by S&P Global Ratings to CCC+ and a negative outlook, from Selective Default, or SD, after concluding an exchange offer to second-lien term loan holders at a discount that steps them up in priority and switches their interest payments to partial payment-in-kind. Ratings also raised the company's second-lien term loan due 2024 to CCC-, from D. It assigned the new first-lien term loan a CCC+ rating while keeping the outstanding first-lien term loans at CCC+ as well.

Ratings said it views the exchange of $83 million of second-lien term loans into $60 million of new first-lien loans due 2023 as tantamount to a default since lenders received less the original security's promise.

In its report, Ratings detailed the company's recent operating performance. The agency said the decline of on-premises drinking because of pandemic-related shutdowns accelerated the conversion of beer bottles to aluminum cans, a move reflected in a nearly 20% decline in second-quarter 2020 sales to beer customers. Those sales are down 14% year to date. Liquor-related sales in the second quarter declined by 11%.

On the other hand, food packaging sales climbed 46% in the year to date as in-home eating took the place of dining out. The combination of negative and positive impacts of the pandemic led to a 4% decline in sales in the second quarter, translating into a leverage ratio of nearly 9.5x.

Ratings projects Anchor will generate negative free operating cash flow over the next 12 months, while the leverage ratio is expected to be around 8x during that period. The rating agency noted that Anchor's covenants are not expected to be triggered, and after extending its asset-based lending facility to Sept. 2023, it has no material near-term maturities.

Anchor Glass manufactures glass packaging for end markets including beer, liquor, food, beverage and ready-to-drink products.