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Rating Action:

MOODY'S ASSIGNS A Baa2 RATING TO IGT'S CREDIT FACILITY; AFFIRMS EXISTING RATINGS; OUTLOOK IS STABLE

14 Nov 2005
MOODY'S ASSIGNS A Baa2 RATING TO IGT'S CREDIT FACILITY; AFFIRMS EXISTING RATINGS; OUTLOOK IS STABLE

Approximately $811 million of debt affected.

New York, November 14, 2005 -- Moody's Investors Service assigned a Baa2 rating to International Game Technology's (IGT) proposed $2.0 billion revolving credit facility and affirmed the company's existing Baa2 senior unsecured ratings. Moody's will withdraw the ratings on IGT's existing term loan and revolver upon its replacement with the new facility. The rating outlook is stable.

IGT reserves the right to accept oversubscriptions to the credit facility of up to $500 million. The facility may be used to fund the repurchase of IGT's zero-coupon senior convertible securities which can be put to IGT in January 2006, and for general corporate purposes including acquisitions and stock repurchases. The credit facility contains customary terms and conditions, including but not limited to, an allowance for liens up to 10% of net tangible assets, maximum debt to EBITDA of 4.0(x), minimum EBITDA to interest of 3.0(x), a prohibition on hostile tender offers and pro-forma compliance with financial covenants to consummate acquisitions. The credit agreement allows for subsidiary debt up to $350 million which, if issued to the maximum allowed, could adversely impact IGT's senior unsecured rating due to the existence of structural subordination.

IGT's ratings reflect its leading market share in casino gaming products, its high profitability, moderate leverage and ability to generate positive cash flow after working capital, capital expenditures and dividends. The rating considers the company's extensive portfolio of trademarks and intellectual property rights that support continued roll-out of new games and systems. IGT's scale and high level of internally generated cash flow allows it to spend more than its competitors on research and development and the acquisition of new technology that should enable the company to maintain a competitive advantage.

The ratings consider that demand drivers have been weak recently due to a slower pace of new market openings and natural wind down of replacement demand. Nevertheless, future demand is expected to pick up by late 2006 driven principally by new international markets, expansion of central determination systems markets (video lottery, charitable gaming and Class II Native American gaming), new game introductions and expansion within existing markets. The ratings reflect IGT's dependence on the regulated domestic and international gaming markets, and the non-investment grade credit profile of many of its customers. IGT's slot machines that are leased to gaming operators (about 50% of revenues) under very profitable recurring contracts can be put back to IGT at any time for any reason, and so, there is a risk that IGT's earnings could be negatively impacted if this were to occur. IGT is dependent on key development personnel and the risks associated with maintaining technological leadership. Given IGT's dependence on the gaming industry, its customer concentration, and technological risks, Moody's expects the company to maintain better than average credit statistics relative to similarly rated companies.

Moody's does not include IGT's accrued jackpot liability pursuant to its wide area progressive slot machines in its calculation of debt as the company sets aside investments in U.S. treasury and agency securities and cash on a dollar for dollar basis to cover this liability.

The rating outlook is stable considering that IGT's credit statistics are currently well above average for the current rating and so, the company can absorb deterioration in its credit metrics that is likely due to slightly lower earnings and cash flow. Given the weaker demand outlook, the company's dependence on the gaming industry and it's largely non-investment grade customer base, its ratings are currently constrained. However, another rating upgrade could be considered if growth in international markets accelerates or if emerging technology drives another wave of replacement demand. Given the company's cushion within its current rating category, a rating downgrade is not likely in the near term. However, the ratings could come under pressure if the company were to pursue a large debt financed acquisition or share repurchase causing debt to EBITDA to exceed 2.0(x) or retained cash flow to debt to drop below 30%.

Ratings assigned:

$2.0 billion bank revolving credit facility due 2010 at Baa2

Ratings to be withdrawn:

$200 million bank term loan due 2009 at Baa2

$800 million revolving credit agreement due 2009 at Baa2

Ratings affirmed:

Senior unsecured zero convertible debentures at Baa2

Based in Reno, Nevada, International Game Technology is a world leader in the design, development and manufacture of computerized casino gaming products and an operator of proprietary gaming systems. Revenues totaled approximately $2.4 billion in fiscal year 2005, ended September 30, 2005.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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