International Game Technology (IGT) Plc’s “planned spin-off” into its global gaming and play digital business “does not affect IGT’s credit rating,” Moody’s Investors Service Inc. says.

IGT will separate the two divisions and combine the businesses with another gaming technology supplier, Everi Holdings Inc., the companies said in a joint update on Feb. 29. The combined business will be worth “approximately $6.2 billion in terms of corporate value,” the update added.

Moody’s said in a recent follow-up that the status quo applied to IGT’s rating included a “Ba1” corporate family rating and a “stable” outlook.

Approximately $2.6 billion of the proceeds will be distributed to IGT, it said in a Feb. 29 statement. Of the proceeds, $1 billion will be used to refinance Everi’s existing debt and the rest will be used to pay the merged company’s financing fees.

Moody’s observed, “IGT expects to allocate approximately $2 billion for the repayment of existing IGT debt and the rest for separation and sale costs, tax leaks and general corporate purposes.”

The transaction is expected to close later this year or early 2025 after necessary shareholder and regulatory approvals.

“With this deal, IGT will ultimately be left to the global lottery business, establishing itself as a pure play lottery company,” Moody’s said

The existing IGT corporation will “change its name and continue to trade on the New York Stock Exchange under the new ticker symbol,” according to a Feb. 29 statement.

The agency said it expected IGT’s formal leverage to be “less than it is today,” and EBITDA (earnings before interest, taxation, depreciation and amortization) leverage to “remain below 3.0 times,” and therefore noted that its deal with Everly “does not affect” IGT’s rating.

IGT is set to report fourth-quarter and full-year earnings on Tuesday. It had net debt of $5.25 billion as of September 30, compared to $5.15 billion as of December 31, 2022.

Moody’s noted that IGT’s lottery business, especially the existing structure of the lottery business, is focused on Italy.

“IGT is constrained by contract concentration and the risk of renewing contracts, with the top 10 contracts accounting for nearly two-thirds of total revenue,” the rating agency noted. “The company’s two Italian contracts account for over 30% of total revenue.”

“The lottery renewal requires capital and some significant advance cash payments for the Italian contract.

“These factors, along with the company’s shareholder dividend and small interest dividend, will generate significant cash use in the future,” it noted.

Moody’s also observed that “IGT’s credit profile has a significant EBITDA margin of close to 50% due to the high level of recurring revenue from the lottery business.”

“IGT is gaining additional benefits from the resilience demonstrated by the lottery industry and the company’s very good performance.”

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