American credit ratings agency Fitch Ratings Incorporated has announced its preliminary assignment of an inaugural ‘BB’ issuer default rating on the new Light & Wonder arm of Scientific Games Corporation.
The New York-headquartered organization used an official Friday press release to detail that it has also awarded the fresh gaming and iGaming subordinate’s secured credit rating with an expected ‘BBB’ score while bestowing an interim ‘BB/RR4’ rating on its existing 2028 and 2029 unsecured notes with of a ‘stable’ outlook.
Scientific Games Corporation revealed last month that it was officially bringing its various gaming and iGaming interests under the Light & Wonder umbrella following the separate sales of its OpenBet sportsbetting division and global lottery interests to Endeavor Group Holdings Incorporated and Brookfield Asset Management Incorporated respectively. Fitch Ratings Incorporated declared that the new subsidiary’s scores reflect ‘its improved credit profile pro forma’ owing to a ‘planned debt paydown’ program being initiated in the wake of these divestitures.
Fitch Ratings Incorporated proclaimed that the embryonic Light & Wonder business is now expected to see its gross leverage ‘decline to the low-3x range’ with a free cashflow margin ‘sustaining in the high-teens percent.’ The financial services giant moreover asserted that these are ‘solid for a gaming supplier and mobile developer’ and follow ‘a more conservative capital structure’ that is destined to ‘support the company’s increased focus on casual mobile gaming.’
In formulating these expected scores and Fitch Ratings Incorporated pronounced that it relied on a number of ‘key assumptions’ regarding Light & Wonder including that the new business maintain an earnings before interest, tax, depreciation and amortization margin ‘in the high 30% range.’ The authority stated that it furthermore expects the arm to expend 10% of its revenues on capital expenditure this year before reducing this standard ‘to around 8% annually thereafter’ inclusive of any license royalty payment obligations.
Fitch Ratings Incorporated noted that it additionally expects Light & Wonder’s revenues from the gaming segment to experience ‘low single-digit growth’ after 2022 with receipts from its iGaming interests chalking up ‘marginal growth each year’. It went on to note that all of this will be backed up by ‘a stabilization in the company’s overall installed base in the 58,000 to 60,000 range and healthy ADRPU’ as well as continued growth from online casino games developer SciPlay Corporation ‘in the high single-digits annually supported by increased research and development and tuck-in acquisitions.’
Read a statement from Fitch Ratings Incorporated…
“The company maintains a strong position in traditional slots and table game business as well as social gaming and iGaming. Conversion of the expected ratings to final ratings are contingent on the transactions closing as contemplated and receipt of final documents conforming materially to preliminary documentation reviewed including sizing of the new debt instruments.”