GGRAsia – Sci Games loan rejig aids cash flow, deleverage: analyst

Sci Games loan rejig aids cash flow, deleverage: analyst

Aug 16, 2017 Newsdesk Industry Talk, Latest News, Top of the deck

Following the latest amendment to its credit agreement, casino equipment and lottery services provider Scientific Games Corp should be able to accelerate the rate at which it slims some of its US$18-billion debt pile, says a Tuesday note from brokerage Union Gaming Securities LLC.

The amended credit agreement brought the applicable margin for Scientific Games’ term loans to 3.25 percent per annum for “eurodollar” London Interbank Offered Rate (LIBOR) loans, and 2.25 percent per annum for base rate loans. No LIBOR floor is applicable for the 3.25-percent term loans.

“In total, the 75-basis point reduction in the interest rate will save the company US$25 million annually. Relative to our model, the better pricing nets about US$12 million of incremental interest savings in 2018,” said Union Gaming analyst John DeCree in the Tuesday note.

The analyst expected that the reduction in interest rate will accelerate the free cash flow of Scientific Games, which will begin to have a greater impact on the firm’s debt reduction.

“We are currently modelling Scientific Games net leverage to hit below 6.5 times by year end and below 6.0 times by the end of 2018,” Mr DeCree said in the note.

“We believe Scientific Games could be heading towards a credit ratings upgrade sooner than later, which would be another catalyst for the equity and set the stage for further capital structure improvements,” he added.

The analyst also mentioned Scientific Games’ “most expensive debt” – US$2.2-billion of 10-percent senior unsecured bonds, which will become callable at 105 percent of the principal amount in December 2018.

“If this pace of deleveraging continues, the refinancing of the 10 percent notes could be a substantial catalyst for the equity,” said Mr DeCree in the note.

He believes that the Global Gaming Expo in Las Vegas in October will be promising for Scientific Games, and expected that the fourth quarter of 2017 and the first quarter of 2018 will be strong for the firm.