In a recent evaluation, Fitch Ratings sheds light on the anticipated success of global gaming giant IGT in reducing its EBITDA leverage.
Leverage Reduction Projections
Fitch predicts that IGT will achieve a notable reduction in its EBITDA leverage, reaching 3.6x by the end of 2023 and further declining to 3.0x by 2026. This aligns with the company’s target leverage range and marks a substantial improvement from the challenges faced during the early days of the COVID-19 pandemic.
Affirmation of Ratings
Over the weekend, Fitch affirmed IGT’s Long-Term Issuer Default Ratings at “BB+,” signaling confidence in the company’s trajectory. The ratings agency highlights IGT’s steady progress towards its EBITDA leverage goal of 2.5x to 3.5x, a positive indicator for stakeholders.
Strategic Moves: Divestitures and Reviews
Fitch acknowledges IGT’s strategic review into its gaming and digital segments, coupled with past divestitures. The sale of the Italian B2C gaming and payments businesses positions IGT favorably, providing avenues to mitigate debt and enhance liquidity.
Potential Impact of Divestitures
Speculating on potential sell-offs, Fitch suggests that a portion of the proceeds could be directed towards further deleveraging. Simultaneously, this move would fortify IGT’s liquidity, strategically positioning the company for the upcoming lottery rebid cycle.
Lottery Segment’s Credit Strength
A cornerstone of IGT’s credit strength is its lottery segment, contributing a significant 70% to the company’s annual EBITDA. Fitch underscores the segment’s resilience, citing lower susceptibility to economic shocks compared to other gaming industry segments.
Favorable Characteristics of Lotteries
Lotteries demonstrate favorable characteristics such as lower cash flow volatility, stable low-to-mid single-digit growth rates even during economic disruptions, and higher profit margins. The segment benefits from substantial barriers to entry due to stringent regulatory oversight and capital intensity.
Addressing Impending Challenges
Despite upcoming cash demands linked to the expiry of lottery licenses in key regions, Fitch observes IGT’s ability to extend these licenses through strong performance and value-added services.
Robust Credit Profile
Fitch acknowledges IGT’s robust credit profile as a key factor positioning the company favorably. This strength enables IGT to continue investing in slot machine development, providing shareholder returns, and addressing potential future cash demands related to lottery concessions.
IGT’s strategic initiatives, potential divestitures, and the strength of its lottery segment collectively contribute to a positive outlook. The company’s ability to navigate challenges and meet its leverage targets showcases resilience and adaptability, solidifying its position in the dynamic gaming industry landscape.