International Game Technology (IGT) Plc’s “planned spinoff” of its global gaming and PlayDigital businesses “has no impact” on IGT’s credit ratings, says Moody’s Investors Service Inc.
IGT is to separate the two units and combine those businesses with another gaming technology supplier, Everi Holdings Inc, the companies had said on February 29 in a joint update. The combined business would be worth “approximately US$6.2 billion on an enterprise value basis,” that update added.
Moody’s said in its follow-up issued recently, that the status quo as applied to IGT’s ratings included its ‘Ba1’ corporate family rating and ‘stable’ outlook.
About US$2.6 billion of the proceeds will be distributed to IGT, the February 29 statement had mentioned. There will be US$1.0 billion of the proceeds used to refinance Everi’s existing debt, and the remainder will be used to pay the combined company’s financing fees.
Moody’s observed: “IGT expects to allocate approximately US$2 billion to existing IGT debt repayment with the remaining amount allocated to separation and divestiture expenses, tax leakage and general corporate purposes.”
The closure of the deal is expected late this year or early 2025, after necessary shareholder and regulatory approvals.
Moody’s stated: “The transaction will ultimately leave IGT with its global lottery business, establishing it as a pure-play lottery company.”
The existing IGT entity “will change its name and continue to trade on the New York Stock Exchange under a new ticker symbol,” according to the February 29 statement.
The institution noted it expected IGT’s pro-forma leverage “to be lower than it stands today,” with debt-to-EBITDA (earnings before interest, taxation, depreciation and amortisation) leverage “to remain at or below 3.0x,” and therefore that the deal with Everi has “no impact on the ratings” of IGT.
IGT is to report its fourth-quarter and full-year results on Tuesday. As of September 30, it had net debt of US$5.25 billion compared to US$5.15 billion at December 31, 2022.
Moody’s noted that the existing structure of IGT’s lottery business – particularly the lottery operations – had a focus on Italy.
“IGT is constrained by its contract concentration and renewal risk, with its top 10 contracts accounting for nearly two-thirds of total revenue,” noted the ratings institution. “The company’s two Italian contracts account for over 30 percent of total revenue.”
It added: “Lottery renewals require capital and some significant up-front cash payments – for the Italian contracts.
“These factors along with the company’s shareholder dividend and minority interest dividends will create considerable uses of cash in the future,” it noted.
Though Moody’s also observed: “IGT’s credit profile benefits from the lottery business’ high level of recurring revenue, with significant EBITDA margins near 50 percent.”
“IGT additionally benefits from the resiliency demonstrated by the lottery industry and the company’s very good liquidity,” said the institution.
