International Gaming Technology (IGT) Plc’s “planned spin-off” into its global gaming and play digital business “does not affect” IGT’s credit rating, Moody’s Investors Service Inc. says.
IGT, in a joint update on Feb. 29, will separate the two divisions and combine the businesses with another gaming technology provider, Everi Holdings Inc., the companies said. The combined business will be worth “approximately $6.2 billion in corporate value,” the update added.
Moody’s said in a recent follow-up that maintaining the status quo applied to IGT’s rating included a “Ba1” corporate family rating and a “stable” outlook.
About $2.6 billion of the proceeds will be distributed to IGT, it said in a Feb. 29 statement. $1 billion of the proceeds will go toward refinance Everi’s existing debt and the rest will go toward paying financing fees for the merged company.
“IGT expects to allocate approximately $2 billion to pay off existing IGT debt and allocate the remaining amount to segregation and sale costs, tax leaks and general corporate purposes,” Moody’s observed
After necessary shareholder and regulatory approval, the transaction is expected to close later this year or early 2025.
“With this transaction, IGT will ultimately be entrusted to the global lottery business, establishing itself as a pure-play lottery company,” Moody’s said
The existing IGT corporation “will change its name and continue to trade under the new ticker symbol on the New York Stock Exchange,” according to a statement on Feb. 29.
The agency said it expected IGT’s formal leverage to be “lower than today” and EBITDA (earnings before interest, taxation, depreciation and amortization) leverage to “remain below 3.0x” and therefore noted that its deal with Avery “does not affect” IGT’s rating.
IGT is set to report fourth-quarter and full-year earnings on Tuesday. It had net debt of $5.25 billion as of September 30, compared with $5.15 billion on December 31, 2022.
Moody’s noted that IGT’s lottery business, particularly the existing structure of the lottery business, is focused on Italy.
“IGT is constrained by contract concentration and re-signing risk, with the top 10 contracts accounting for nearly two-thirds of total revenue,” the rating agency said. “The company’s two Italian contracts account for more than 30% of total revenue.”
“Renewal of the lottery requires capital and some significant upfront cash payments for the Italian contract.
“These factors, along with the Company’s shareholder dividend and small interest dividend, will generate significant cash use in the future,” it noted.
Moody’s also observed that “IGT’s credit profile has a significant EBITDA margin of nearly 50% due to high levels of recurring revenue from its lottery business.”
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