Global gaming supplier Light & Wonder is expected to significantly reduce its EBITDA leverage, reaching 3.7x in 2023 and further decreasing to 3.3x in 2024, according to credit rating agency Fitch. The positive forecast is attributed to robust cash flow generated through the company’s gaming equipment and systems operations. Fitch’s affirmation of Light & Wonder’s Long-Term Issuer Default Rating (IDR) at “BB” underscores the company’s business and financial flexibility, supporting its ability to meet financial commitments.
Financial Outlook:
EBITDA Leverage Projections: Fitch anticipates a notable reduction in Light & Wonder’s EBITDA leverage, forecasting it to reach 3.7x in 2023 and further decline to 3.3x in 2024. The agency attributes this positive trend to the continued momentum of cash flows from gaming equipment and systems operations.
Business Resilience: Fitch’s assessment highlights the elevated vulnerability to default risk but emphasizes Light & Wonder’s business resilience, characterized by consistent EBITDA leverage metrics and stable digital cash flows.
Free Cash Flow Generation: The forecast relies on the strong expected free cash flow (FCF) generation of Light & Wonder, supported by its gaming equipment and systems operations. Fitch notes that the company’s FCF and liquidity remain robust, aligning with the “BB” rating.
Strategic Initiatives and Acquisitions:
De-leveraging Priorities: Light & Wonder’s management prioritizes de-leveraging and has approximately $200 million available under its 2022 share repurchase program. While acquisitions currently have a lower priority, the company maintains the ability to de-lever quickly within its targeted net leverage band of 2.5x-3.5x.
SciPlay Acquisition: Fitch views the acquisition of the outstanding 17% equity interest in Light & Wonder’s social gaming arm, SciPlay, for $485 million as credit positive. The move is seen as enhancing balance sheet flexibility, providing synergies in game development, and contributing to the company’s overall growth strategy.
Recent Financial Performance:
Adjusted EBITDA: Light & Wonder reported Adjusted EBITDA of $286 million for the September 2023 quarter, reflecting a 22% year-on-year increase.
Ambitious Targets: Light & Wonder’s President and CEO, Matt Wilson, has set an ambitious EBITDA target of $1.4 million by the end of 2025, demonstrating the company’s confidence in its growth trajectory.
Regional Expansion and Focus:
Asia-Pacific Growth: Light & Wonder is strategically expanding its presence in the Asia-Pacific region, considering Australia as a premium market and a key indicator for scaling successful games globally.
Secondary Listing in Australia: The recent secondary listing on the Australian Securities Exchange reflects Light & Wonder’s commitment to the Asia-Pacific market, where it competes with industry leaders like Aristocrat.
Focus on Asia: Light & Wonder views Asia, particularly the Philippines, Singapore, and surrounding markets, as a focus area, driving improved market shares.
Fitch’s positive outlook on Light & Wonder’s EBITDA leverage reduction, strong cash flow, and strategic initiatives underscore the company’s resilience and growth potential. With a commitment to de-leveraging, strategic acquisitions, and a focus on key markets like Asia-Pacific, Light & Wonder remains well-positioned for sustained success in the global gaming industry.