Fitch Ratings Inc says it has downgraded casino technology supplier Everi Holdings Inc’s long-term issuer default ratings (IDRs) to ‘B’ from ‘B+’. The downgrade applies also to the group’s subsidiary Everi Payments Inc, said the ratings agency in a report issued last week.
Fitch has also downgraded Everi’s senior secured credit facility, as well as the group’s unsecured notes “on reduced recovery prospects” following a proposed incremental secured debt issuance. The rating outlook is negative, it added.
Everi Payments said earlier this month that the proceeds of a proposed US$125-million senior secured term loan facility would be used to provide incremental cash liquidity for the group.
The Everi group is a United States-based specialist in cash handling technology and electronic game content for the casino industry. The group said last month it had implemented “targeted furloughs and company-wide salary reductions” due to the business disruption to the gaming industry caused by the Covid-19 virus. Such measures were in order “to maintain balance sheet flexibility and preserve liquidity,” the company said at the time.
In its statement, Fitch said the downgrade to Everi’s rating reflects the expectation that the group’s leverage “will now remain above the prior 4.5 times downgrade sensitivity at the ‘B+’ IDR level”. The agency said it expected Everi to use the incremental term loan for general corporate purposes, providing support to Everi’s “liquidity profile to weather near-term cash burn”.
“Everi’s negative outlook reflects the company’s exposure to the adverse impact to the gaming industry from the coronavirus pandemic,” stated Fitch. “Specifically, about two-thirds of its revenues are directly tied to activities at casinos, which are widely closed with uncertain timeline for openings or normalisation of volumes. Other segments will be impacted by gaming operators’ likely tendency to conserve capital in the near term.”
The effects of the Covid-19 pandemic have led to market-wide temporary closures of casinos in key gaming jurisdictions in the Asia-Pacific region and globally, including in Singapore, the Philippines, South Korea, Malaysia, Australia and markets in the United States. Macau ordered the suspension of operations at all casino facilities for 15 days in February, but casinos have since been instructed to reopen, albeit with limited capacity.
Fitch said it was now projecting Everi’s leverage to “spike” in 2020 at 9.0 times and return to within Everi’s 6.0 times debt/EBITDA (earnings before interest, taxation, depreciation and amortisation) sensitivity for ‘B’ rating in 2021 “when conditions normalise”.
The rating agency also estimates that Everi “will burn” US$39 million in cash during the second quarter of 2020, with free cash flow “turning breakeven-to-slightly positive” in the third and fourth quarters of 2020. Currently, Everi has a 4.5-times net secured leverage maintenance covenant that Fitch said it expected the casino technology group “to seek an amendment for”.
According to the report, Fitch expects Everi to record “roughly 30-percent revenues and 50-percent EBITDA declines” in 2020. The negative impact from the Covid-19 pandemic is expected to be “most severe in the second quarter of 2020 (75-percent revenue decline and about breakeven margin) with some recovery in the second half of 2020”.
The ratings agency added that the casino technology group would see a “modest” recovery in 2021, “and still 10 percent to 15 percent below 2019 levels, reflecting economic uncertainty and the duration of the recovery post-pandemic”.
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"One thing that is certain under the coronavirus era is that the biggest beneficiaries are the illegal operators, both bricks and mortar and online"
Partner and director overseeing government affairs at casino industry consultancy Global Market Advisors