S&P cuts City Brewing

S&P said it lowered its ratings for City Brewing Co. LLC and its $850 million senior secured term loan B to CCC from B-.

“City Brewing's third-quarter results were well below our previous expectations, as it has remained pressured by both softening demand and supply chain difficulties. As a result of further weakening profitability and cash flow, we believe it could face a near-term liquidity constraint,” S&P said in a press release.

The agency noted City Brewing’s $122 million revolver comes with a springing maximum first-lien leverage covenant of 7.15x that triggers when borrowings top 30% of total revolving commitments, or $36.6 million. As of Sept. 30, there was $36 million drawn under the revolver and the leverage was very close to the maximum threshold, leaving the company with very tight borrowing capacity without triggering and violating the covenant.

S&P also noted the weaker demand for City Brewing’s products and the company’s higher labor and energy costs.

The outlook is negative.

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