MOODY'S ASSIGNS Ba1 SENIOR UNSECURED RATING TO INTERNATIONAL GAME TECHNOLOGY.
Moody's Investors Service assigned a Ba1 rating to the senior unsecured debt and bank credit agreement of International Game Technology (IGT). This is the first time that Moody's has rated debt of IGT. Moody's ratings incorporate the company's leading market shares, global presence and historical debt protection measures, as well as its dependence on the regulated domestic gaming market, its aggressive share repurchase programs and the likelihood of further acquisitions. The senior implied rating is Ba1.
Senior unsecured notes to be issued under rule 144A at Ba1.
Senior unsecured bank credit agreement at Ba1.
"Stable. International Game Technology is appropriately positioned at its current rating level given its strong franchise and its ability to maintain its market dominance through solid research and development expenditures. The company's aggressive share repurchases and propensity to make strategic acquisitions will increase leverage and could result in a changing business and financial profile."
IGT is one of the world's largest designers and manufacturers of computerized casino games and operators of proprietary gaming systems. The company's sales revenues are derived from gaming products (57.8% of sales for fiscal year ending September 1998) such as video gaming machines and spinning reel slot machines and from gaming operations (42.1%). Gaming operations' sales are generated predominately by company-designed and -operated systems which link gaming machines in various casinos to build progressive jackpots. IGT has a very high market share: its machines represented about 63.8% of the installed base of North American gaming machines at September, 1998.
IGT's sales increases are obviously influenced by the expansion of gaming casinos and jurisdictions. Given the expected slowing in new casino openings in Las Vegas after this year, domestic growth in gaming machine sales could be challenged. To counter this potentiality, IGT expanded its international presence with the 1998 purchases of Barcrest Limited in England and Australia's Olympic Amusements Pty. Limited. (International sales were about 23% of fiscal 1998 sales, up from only about 16.5% two years earlier.) The pending acquisition of distributor Sodak Gaming, Inc. should bolster the company's sales to Native American gaming establishments. As replacement sales may grow relative to new sales, IGT's service capabilities will remain a key component of the company's marketing strategy.
IGT has a number of competitive advantages, which should preserve its market position. The company's strong operating cash flow can cover hefty research and development expenditures ($38 million or about 4.6% of fiscal 1998 sales) - which are critical to product innovation. IGT's overall financial condition and expertise allow it to manage the significant assets and offsetting liabilities for progressive jackpots - over $529.8 million at fiscal 1998 - which smaller competitors may not.
Historical debt protection measures, while solid, have been declining. The acquisition of Sodak for cash of $230 million will further increase leverage. IGT has been an aggressive repurchaser of shares, with stock buybacks of about $225.5 million in fiscal 1997, $122 million in fiscal 1998 and another $26 million during its first fiscal quarter of 1999. Moody's expects that IGT could continue to make share repurchases and strategic acquisitions, potentially changing the company's financial profile and further eroding debt protection measures.
IGT's new $1 billion senior unsecured notes will be sold in privately negotiated transactions without registration rights under the Securities Act of 19933 (the "Act") under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance will be designed to permit resale under Rule 144A. Proceeds may fund the Sodak acquisition, repay other debt (such as outstanding debt under the domestic revolving credit agreement and Australian bank facility and the $85.7 million of outstanding 7.84% Senior Notes due 2004), and finance working capital and share repurchases. IGT's bank credit agreement is $250 million senior unsecured revolving credit expiring in May 2002. The new senior notes will rank pari passu with the bank credit agreement. Moody's notes that IGT is a holding company, whose operations are conducted by subsidiaries. No subsidiaries have guaranteed any IGT debt. The new senior notes can receive future subsidiary guarantees in certain circumstances, including the issuance of subsidiary guarantees on other debt and/or the incurrence of a specified amount of indebtedness at a subsidiary level. Should the notes benefit from subsidiary guarantees in the future, ratings could be adjusted accordingly. Moody's expects that funded debt will continue to be incurred at the parent IGT level.
Headquartered in Reno, Nevada, International Game Technology had fiscal 1998 sales of over $824 million.
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