Anchor, which manufactures bottles for popular beverages like Budweiser, Snapple and Yoo-Hoo but has failed to earn a profit, said in a news release Monday night that it expects to fall out of compliance with the terms of two lines of credit worth up to a total of $135-million. In a worst-case scenario, the noncompliance could trigger a chain reaction of financial woes that would lead the company to file for bankruptcy protection for the third time since 1996.
Anchor said it also is reviewing millions of dollars of customer payments the company recorded as income since 2003 to see if they were "properly accounted for." As a result, the company said it is unlikely to file its next quarterly statement with the Securities and Exchange Commission on time.
Anchor's stock took a beating Tuesday in the heaviest trading since it went public two years ago, falling 67 cents per share to close at a record low of 57 cents. Meanwhile, Moody's Investors Service lowered Anchor's bond rating by two notches to Caa1, placing it in a category Moody's describes as "bonds of poor standing."
Calls Tuesday to Anchor's chief financial officer and its top shareholder, New York hedge fund Cerberus Capital Management, were not returned. In its news release, Anchor blamed its loan-compliance problem on "weak sales" and an inability to charge higher prices in the face of rising energy and raw-material costs.
Tuesday's news only added to the woes of Anchor shareholders, some of whom paid upward of $16 per share when the company went public nearly two years ago.
On the other hand, Boca Raton lawyer Ken Vianale said Anchor's newly disclosed accounting issues may strengthen a shareholder lawsuit his clients filed against the company last year.
The suit, filed in U.S. District Court in Tampa, accuses Anchor of, among other things, misleading IPO investors by overstating key measures of its financial health.
On Monday, Anchor's lawyers filed a motion to dismiss the lawsuit. A hearing on the motion is several months away.
Anchor has been in and out of bankruptcy since 1996, when a loss of business from customer Anheuser-Busch forced the company to seek protection from its lenders. It landed in bankruptcy again in 2002. Cerberus, for years an Anchor investor, put together a deal that lifted Anchor out of bankruptcy while gaining 100 percent ownership of its stock. Cerberus and its affiliates took the company public a year later.
Since then, Anchor has struggled financially. Tuesday, the company said it expected to fall out of compliance with lines of credit it has with Wachovia Bank NA and Cerberus-affiliated Madeleine LLC, and also with capital leases obtained from General Electric Credit Corp. Though Anchor thinks it will be able to draw enough money from its lines of credit to continue paying for basic operations, it said its lenders have the right to demand accelerated repayment of all debts.
In addition, Anchor said there's "no assurance" it will be able to pay a $19.2-million interest payment due Aug. 15 on its long-term bonds. If Anchor is unable to restructure its debts, meet its payments or get the necessary waivers, it may have to file for bankruptcy protection, the company said.
Anchor's news release did hold out hope of a new infusion of capital.
The company said it is in preliminary discussions with an unidentified party about an investment that would cover Anchor's $19.2-million installment.
Whether Anchor will be able to avoid default is unclear. A recent Moody's study found that about 7 percent of the U.S. companies it rated "Caa1" at the start of 2004 defaulted at some point that year.