GGRAsia – Sci Games net leverage down, cost savings likely: analyst

Sci Games net leverage down, cost savings likely: analyst

Nov 06, 2017 Newsdesk Industry Talk, Latest News, Top of the deck, World

Gaming technology and services provider Scientific Games Corp has reduced its net leverage to 6.8x adjusted earnings before interest, taxation, depreciation and amortisation (AEBITDA), and interest cost savings are now on the cards, stated brokerage Union Gaming Securities LLC in a Friday note.

At the end of September, Scientific Games had total net debt of US$7.98 billion, according to its third-quarter earnings statement issued on November 1.

“Scientific Games has worked its net leverage down to 6.8x AEBITDA and considerably reduced its interest expense this year with term loan repricings,” stated Union Gaming analyst John DeCree.

“We see a base case for nearly US$100 million of incremental interest savings in 2018 if credit markets hold up,” added the analyst.

He noted that bonds issued by Scientific Games with respective 7-percent and 10-percent coupon rates were “callable in January 2018 and December 2018, respectively”.

“Refinancing these bonds would represent a significant free cash flow catalyst for Scientific Games,” wrote Mr DeCree.

In terms of group cost savings, the brokerage saw opportunity for cost savings and accrual of group EBITDA via Scientific Games’ planned acquisition of Canada-listed sports wagering specialist NYX Gaming Group Ltd, announced in September.

“We like the pending NYX acquisition for a number of reasons. First, it represents more growth as Scientific Games integrates its content with NYX’s technology,” wrote Union Gaming’s Mr DeCree.

He added: “We see revenue synergy opportunities but also recognise some cost synergies as NYX is a publicly-listed company as well. Second, NYX is capex-light, allowing the EBITDA growth to accrue more quickly to Scientific Games’ free cash flow. Finally, NYX adds EBITDA to Scientific Games’ highest-multiple digital and interactive business”, stated the analyst.

Scientific Games had said that the 6.8-percent growth in third-quarter revenue had been driven by its gaming, lottery and interactive segments.

Scientific Games’ wholly-owned subsidiary Scientific Games International Inc conducted in October a private offering for US$350-million in senior secured notes due 2025.

The net proceeds of the notes, together with cash on hand and borrowings under the company’s existing revolving credit facility are to be used to finance the planned acquisition of NYX Gaming and its subsidiaries, and to refinance some debt of the target business, according to previous announcements from Scientific Games.