Global gaming supplier Light & Wonder is tipped to reduce its EBITDA leverage to 3.7x this year and further to 3.3x in 2024, aided by strong cash flow through its gaming equipment and systems operations, according to ratings agency Fitch.
The forecast formed part of a Wednesday note in which Fitch affirmed the Long-Term Issuer Default Rating (IDR) of Light & Wonder, Inc and Light & Wonder International, Inc at “BB”, indicating an “elevated vulnerability to default risk” but with “business or financial flexibility … that supports the servicing of financial commitments.”
In assessing the supplier’s rating, Fitch said it expects EBITDA leverage to not only reach 3.3x next year but to decline further over the forecast horizon.
“The continued momentum of Light & Wonder’s gaming equipment and systems cash flows in 2024, coupled with stable digital cash flows, will allow Light & Wonder to keep its EBITDA leverage metrics in 2023 and 2024 consistent with ‘BB’,” the agency said.
“Notably, LNW’s strong expected FCF generation and strong liquidity remain consistent with the rating.
“Light & Wonder still has about US$200 million available under its 2022 share repurchase program and though acquisitions currently fall low on its priority list in terms of capital allocation, the company has the ability to de-lever back within its targeted net leverage band of 2.5x-3.5x quickly.”
As reported by IAG, Light & Wonder President and CEO Matt Wilson has set an ambitious EBITDA target of US$1.4 million by end-2025 – up from US$913 million in 2022 – after the company was able to ease its once crippling debt obligations via the sale of its lottery and sports betting assets.
Light & Wonder recently announced Adjusted EBITDA of US$286 million for the September 2023 quarter, up 22% year-on-year.
Although the recent acquisition of the outstanding 17% equity interest in its social gaming arm SciPlay for US$485 million has added a “half turn” to Light & Wonder’s leverage, Fitch describes the move as credit positive given the use of cash, the subsidiary becoming part of the restricted group, enhanced balance sheet flexibility and further game development synergies.
Fitch also noted that Light & Wonder continues to make strong moves across Asia-Pacific in another sign of its growth trajectory.
“Light & Wonder considers Australia as a premium market and a bellwether for scaling successful games globally,” Fitch said, pointing to the company’s recent secondary listing on the Australian Securities Exchange.
“It has been able to expand its share in the region, which serves as the home base of [rival supplier] Aristocrat who has a market-leading presence. Asia is another focus area for the company, with Philippines, Singapore and the surrounding markets driving improved ship shares.”
