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Rating Action:

MOODY'S CONFIRMS INTERNATIONAL GAME TECHNOLOGY'S Ba1 RATINGS, AND PLACES ANCHOR GAMING'S RATINGS ON REVIEW FOR POSSIBLE UPGRADE.

09 Jul 2001
MOODY'S CONFIRMS INTERNATIONAL GAME TECHNOLOGY'S Ba1 RATINGS, AND PLACES ANCHOR GAMING'S RATINGS ON REVIEW FOR POSSIBLE UPGRADE.

Approximately $1.2 Billion of Debt Securities Affected.

New York, July 09, 2001 -- Moody's confirmed the Ba1 ratings of International Game Technology (IGT) following its announcement that the Boards of Directors of Anchor Gaming and IGT have approved a merger of the two companies in a stock transaction valued at $1.365 billion based on IGT's closing price of $59.20 on 7/6/01, plus the assumption of approximately $430 million of Anchor's debt. Moody's also placed the ratings of Anchor Gaming on review for possible upgrade given the acquisition by higher rated IGT. Moody's review will focus on placement of Anchor senior subordinated notes within the capital structure of the new company relative to the existing debt of IGT.

The rating confirmation reflects IGT's leading market share in gaming machines, its global presence, its established track record in developing new game ideas, and its technological expertise. IGT's recurring revenue stream from its proprietary MegaJackpot wide area progressive systems will be enhanced by gaining control of its successful 50/50 joint venture with Anchor. Anchor's other businesses, namely, on-line lottery systems, casino operations, and gaming machine routes, will add diversification to IGT's credit profile. Moody's considers integration risk to be minimal given the close relationship that has existed between each company with the joint venture, as well as the fact that IGT already manufactures for Anchor. The rating outlook is stable reflecting the growth in demand for IGT's products from California, the successful roll-out of new games under revenue participation agreements, and our expectation that IGT's cashless technology, EZ Pay, will drive demand for new machines.

Ratings Confirmed

International Game Technology

Senior Implied at Ba1.

Senior Unsecured at Ba1.

Issuer Rating at Ba1.

Ratings Under Review for Possible Upgrade

Anchor Gaming

Senior Implied at Ba2.

Issuer Rating at Ba3.

Senior subordinate at B1.

The ratings consider the need for continued spending on research and development, the risk associated with reliance on key engineers to develop new game ideas, and the technology necessary to produce the end product. Moody's has factored into its ratings the risk of obsolesce and the potentially short product life cycles, as well as the highly regulated and competitive industry landscape. The combined entity will have a strong return on assets in excess of 20%, however, retained cash flow after working capital, and capex is modest for the rating category. Moody's estimates that pro-forma leverage will be approximately 2.3x EBITDA, and EBIT to interest coverage at about 3.5x which is adequate for the rating category. The industry outlook is positive with demand being driven by the low cost - high return to casino operators from slot machines, new game introductions, and increased demand from California. Cashless technology is expected to add momentum over the medium term to the demand for slot machines because it improves customer service, and reduces some costs to the operator. Therefore, Moody's expects debt protection measures to improve through both EBITDA growth spurred by strong demand, as well as debt reduction.

The transaction is subject to approval by both companies' shareholders, and regulatory approvals. The companies' anticipate that the transaction will be completed in the first calendar quarter of 2002.

Headquartered in Reno, Nevada, International Game Technology had fiscal 2000 sales of $1.04 billion. Anchor Gaming, headquartered in Las Vegas, Nevada, had fiscal 2000 sales of $525 million.

New York
Pamela Stumpp
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Peggy Holloway
Vice President - Senior Analyst
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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