Ratings agency Fitch has assigned International Game Technology and IGT Lottery Holdings an Issuer Default Rating of “BB+” for the first time, citing the company’s “conservative leverage” and improved financial position since the start of the COVID-19 pandemic.
It has also assigned a “BBB-“/”RR2” rating to IGT’s senior secured debt, which consists of IGT’s senior secured notes and term loan, with a Rating Outlook of Stable.
Noting that IGT has sold off non-core assets to fund debt paydown, Fitch said in a note that the company’s strong credit profile “positions IGT favorably to continue funding slot machine development, shareholder returns, and absorb potential future cash demands related to lottery concessions. The rating also considers IGT’s leading share in core gaming end markets, specifically lottery.”
Specifically, the agency pointed to IGT having reduced its gross leverage from 5.7x at the end of 2019 to 4.0x at the end of 2022, while management has stated its intention to further reduce leverage to between 3.0x and 3.5x.
Despite facing increasing competition, particularly in the US where it holds around 25% market share in slots, Fitch said IGT’s rating “reflects its conservative leverage profile, solid FCF generation, and leading market position in the global lottery and gaming equipment industries. This is balanced against the competitive intensity for slot machines and the capital-intensive nature of the lottery industry that could also require material, upfront cash payments.
“IGT’s primary difference from its peers Aristocrat Leisure, Light & Wonder and Everi Holdings is that a majority of its cash flows are generated by less cyclical lotteries. This results in slightly weaker FCF (free cash flow) generation, though still solid, when coupled with IGT’s recurring dividend and minority distributions. IGT is considered a top three global gaming supplier with peers ALL and LNW, each generating a higher degree of ship share than smaller peer Everi.
“IGT’s lottery exposure gives Fitch a slightly higher tolerance for leverage relative to its US-rated peer set.”
In response to the rating, IGT Chief Financial Officer Max Chiara said, “We are pleased to have achieved, for the first time from Fitch, an issuer rating of ‘BB+’ with a stable outlook and an investment grade senior secured debt rating of ‘BBB-’.
“These ratings recognize our leadership positions across business segments, our history of delivering solid operating and financial results, and our strong credit profile.”
