Global gaming giant IGT is expected to have reduced its EBITDA leverage to 3.6x as of end-2023, further declining to 3.0x by 2026 to bring it in line with the company’s leverage target, according to ratings agency Fitch.
In weekend note which saw it affirm the Long-Term Issuer Default Ratings of IGT and IGT Lottery Holdings at “BB+”, Fitch said the company was on track to meet management’s EBITDA leverage target of 2.5x to 3.5x, having soared as high as 5.5x during the early days of the COVID-19 pandemic.
This, it added, is to be supported by the potential divesture of some IGT businesses and the strength of its lottery segment globally.
On the issue of divestures, Fitch noted that IGT – whose EV/EBITDA multiple continues to lag industry peers – is in the midst of a strategic review into its gaming and digital segments, having previously sold off its Italian B2C gaming business and Italian payments business to pay down debt.
“Barring a status quo, Fitch believes a part of the proceeds [of any potential sell-offs] could potentially be used to further de-lever, while also bolstering IGT’s liquidity for the upcoming lottery rebid cycle.”
On lotteries, Fitch said this segment provides IGT with credit strength because it contributes around 70% of the company’s annual EBITDA while being more resilient and less prone to economic shocks than other segment of the gaming industry. It also exhibits favorable characteristics relative to other forms of gaming such as less cash flow volatility, stable low-to-mid single-digit growth rates even during periods of dislocation, and higher profit margins, while benefitting from significant barriers to entry due to high regulatory oversight and capital intensity.
Although IGT is facing some upcoming cash demands with the expiry of existing lottery licenses in Italy, New York, Texas and the Americas, Fitch observed that the company has generally been able to extend them prior to expiration through strong performance and value-added services.
IGT’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 agency said.
