Fitch Ratings has assigned a 'BB'/'RR4' rating to
Proceeds will be used to refinance the existing 8.625% senior unsecured notes due 2025. LNW's Long-Term Issuer Default Rating is 'BB'. The Rating Outlook is Stable
LNW's rating reflects its conservative leverage profile and solid expected FCF margin for a gaming supplier and mobile developer. Fitch believes LNW's credit profile remains consistent with a rating 'BB', due to robust FCF generation, strong liquidity, and still conservative leverage. Fitch forecasts LNW's gross leverage will decline below 4.0x by 2023 through EBITDA growth.
Key Rating Drivers
Fitch forecasts LNW to reach 3.7x gross leverage for 2023 and decline further over the forecast horizon. The further recovery of LNW's gaming equipment and systems cash flows in 2023, coupled with stable digital cash flows, will allow LNW to achieve gross leverage metrics in 2023 and 2024 consistent with 'BB'. Notably, LNW's strong expected FCF generation (mid-teens margins forecast in 2023 and beyond) and strong liquidity remain consistent with the rating.
Growing Digital Presence: The company announced that it is acquiring the 17% remaining interest of
Monthly payer users have increased to 625,000 as of
Diversified Product Mix: LNW is a diversified gaming supplier with exposure to traditional gaming (slots, tables, systems), iGaming, social gaming and casual mobile gaming. The company's digital adjacencies balance the traditional slot industry's high competitiveness, tepid replacement cycle, and unreliable new casino opening schedule. The company's leading slot systems business (approximately 10% of pro forma revenues) provides a relatively reliable cash stream and its table game business (approximately 8%) is shifting more toward a lease model with operators.
Leading Gaming Supplier: The company garners low-20% market share for both slot sales and installed base of premium slots in
There are signs of stabilizing market share shifts, with the company registering a relatively stable installed base in
Strong FCF Generation: Fitch expects the company's FCF generation and margin will approximate
The company's FCF benefits from management's preference for share repurchases over dividends. Fitch expects a majority of FCF to be allocated toward repurchases (
Parent Subsidiary Linkage: Fitch applied the strong subsidiary/weak parent approach under its Parent and Subsidiary Linkage Rating Criteria. Fitch views the linkage as strong across the company's entities given the openness of access and control by the parent and relative ease of cash movement throughout the structure. Fitch views the entities on a consolidated basis and the IDRs are linked.
Derivation Summary
The company has a similar business mix as peer
Key Assumptions
Fitch's Key Assumptions Within the Rating Case for the Company:
Fitch forecasts mid-single-digit growth for the Gaming segment in 2023 and low single-digit growth thereafter, supported by a stabilization in the company's overall installed base in the 58,000-59,000 range and healthy ADRPU;
iGaming experiences mid- to high single-digit growth annually, supported by the rollout of LNW's Live Dealer platform and other online market advances;
EBITDA margins in the high 30% range. Fitch forecasts
Capex is approximately 8%-10% of revenues over the forecast horizon. This includes royalty payments on license obligations;
Total gross debt balance steady around
Capital allocation is balanced between shareholder returns and tuck-in M&A in the digital space. Fitch assumes share repurchases are the primary avenue to return capital to shareholders.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Gross leverage sustaining below 3.0x;
Stable or growing slot share, particularly in
Expanding footprint in casual gaming demonstrated by successful launch of new games and or an increase in user-based metrics (both paying and non-paying).
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Gross leverage sustaining above 4.0x;
Slots business suffering from market share loss or the deterioration of operating fundamentals;
Greater revenue concentration in the more cyclical and hit-driven casual mobile gaming business.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
The company has multiple sources of liquidity that will support its growth strategy and fund shareholder returns. The company had
Capex is manageable in the context of the company's improved cash flow from operations, which should remain around 8%-10% of revenue. This includes 'payments on license obligations' that get reported in the company's cash flow from financing and are related to requirement payments on brand licenses that are akin to operating expenses.
Following the closing of the acquisition of the remaining equity interests in
Issuer Profile
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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