Assigns (P)B1 rating to the proposed EUR450 million senior unsecured notes due 2024
London, 11 September 2017 -- Moody's Investors Service has today affirmed Greek gaming operator
Intralot S.A. (Intralot or the "company")'s
B1 corporate family rating (CFR) and B1-PD probability of default
rating (PDR), as well as the B1 rating on the existing EUR250 million
senior unsecured notes due September 2021 issued by Intralot Capital Luxembourg
S.A. Concurrently, Moody's has assigned a (P)B1
rating to the proposed EUR450 million senior unsecured notes due 2024
also to be issued by Intralot Capital Luxembourg S.A. The
outlook on all ratings remains negative.
The proceeds from the 2024 notes will be used to redeem the existing May
2021 notes, to re-pay EUR165 million of the outstanding syndicated
bank facilities due December 2019, for general corporate purposes,
and to pay the transaction fees. At completion, Moody's
expects Intralot to have approximately EUR154 million cash on the balance
sheet. The B1 rating of the May 2021 notes will be withdrawn upon
their full redemption.
"Our decision to affirm Intralot's ratings balances its moderate
like-for-like EBITDA growth in the first six months of fiscal
year 2017, the improved liquidity profile with the proposed refinancing
and potential further debt reduction from proceeds of prospective disposals,
against ongoing changes in the company's strategy and business profile,
and our expectations for negative free cash flow in 2017 and 2018 primarily
to fund new projects, the renewal of existing licences and increased
dividends to minorities", says Donatella Maso, a Moody's
Vice President - Senior Analyst.
Moody's issues provisional ratings in advance of the final sale of securities
and these ratings reflect Moody's preliminary credit opinion regarding
the transaction only. Upon a conclusive review of the final documentation,
Moody's will endeavour to assign a definitive rating to the facilities.
A definitive rating may differ from a provisional rating.
RATINGS RATIONALE
-- AFFIRMATION OF B1 CFR
Today's affirmation reflects Intralot's modest like-for-like
reported EBITDA growth of 3.6% (or no growth if adjusting
for Eurobet and the Chilean contract) during the first six months of fiscal
year (FY) 2017, the improvement in the debt maturity profile and
overall liquidity with the proposed refinancing, while the leverage
remains broadly neutral at approximately 3.9x and there are no
material interest cost savings.
These positives are, however, counterbalanced by ongoing changes
in the company's strategy and business profile and Moody's
expectations that free cash flow will continue to be weak or negative
in 2017 and 2018 due to increased dividends to minorities and capex from
the renewal of licences and a potential new contract. The latter,
which will be funded with additional debt estimated in the region of EUR70
million, will likely increase the leverage to above 4.0x
if the proceeds from the sale of a portion of Gamenet's shares and/or
of other prospective disposals (i.e. Jamaican operations)
are not used for further debt reductions. Moody's however note
that recent M&A activity have decreased the company's exposure
to emerging markets shifting the earnings mix toward developed countries.
However, Intralot's B1 CFR continues to reflect (1) the company's
significant presence in certain emerging markets including Argentina,
Azerbaijan and Turkey, the latter contributing to 21% of
last twelve months ended 30 June 2017 EBITDA; (2) limited historic
growth track record combined with ongoing weak or negative free cash flow
generation as a result of the capital expenditures required to grow the
business and new contract wins, and dividends payments to minorities;
(3) exposure to regulatory and fiscal headwinds inherent to the gaming
industry; and (4) to foreign exchange fluctuations resulting from
the discrepancy between the main currency of the debt and its cash flow
generation. The existence of significant minority interests also
results in pro-rata leverage being materially higher than reported
(fully consolidated) leverage, as well as substantial group cash
leakage through dividend outflows to the minorities.
Conversely, the B1 CFR takes into account (1) Intralot's leading
market position as a global supplier of integrated gaming systems and
services; (2) a diversified contract portfolio with 88 contracts
and licences; (3) its broad geographical presence in 52 jurisdictions;
(4) good revenue visibility as a result of a large number of long-term
contracts; (5) a proven track record of renewing existing contracts
and winning new business, with growth potential from further liberalisation
of the gaming sector in less mature markets.
-- ASSIGNMENT OF (P)B1 RATING
The (P)B1 rating of the new senior unsecured notes due 2024 is in line
with the B1 rating of the existing notes, as they rank pari passu
(also with the syndicated bank facilities). New and existing notes
and the bank facilities share the same guarantee package, set for
a minimum of 70% of the consolidated EBITDA and total assets in
the syndicated facilities agreement.
--LIQUIDITY
Moody's considers Intralot's liquidity profile as being adequate
for its near-term requirements resulting from working capital needs,
capital expenditures, dividend payments to minorities. Such
liquidity is underpinned by approximately EUR154 million of cash balances
at completion, full availability of the EUR86.1 million RCF
and the EUR40 million stand-by facility, both due December
2019, and short-term local credit lines. Moody's
also expects Intralot to generate negative free cash flow in 2017-2018
from increased capex primarily for new projects, which will be funded
by debt. Moody's notes that the company needs at least EUR60
million of cash for basic operational needs and therefore continues to
partially rely on being able to access cash and cash flow from certain
emerging markets.
The current syndicated facilities agreement includes a maximum net leverage
ratio of 3.0x, a minimum net interest cover ratio of 3.75x,
maximum capex of EUR85 million and maximum amount of cash deposited in
Greek banks as financial maintenance covenants. As of March 2017,
the company was in compliance with the leverage and interest cover tests
with tightening headroom of 3% and 11% respectively.
Moody's expects Intalot to be able to renegotiate its covenants to fulfil
its growth plan, if needed.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the weak position of Intralot in its rating
category due to ongoing changes in the company's business profile,
weak or negative free cash flow generation, and the uncertainty
related to the timing of intended disposals and the use of the sale proceeds
for future debt reductions, which could hinder any positive movements
in its credit metrics.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the negative outlook, Moody's anticipates no upward
pressure on the ratings. A stabilisation of the negative outlook
could result if (1) Intralot delivers on its growth strategy for the remaining
core business whilst demonstrating sustained positive free cash flow and
an adequate liquidity profile; (2) it reduces its debt from the proceeds
of expected disposals; and (3) it maintains an adjusted debt/EBITDA
of around 3.5x.
Downward pressure on the ratings could result from (1) debt/EBITDA (as
adjusted by Moody's) sustainably exceeding 4.0x in any year going
forward; (2) interest coverage (measured as EBIT/interest expense,
and as adjusted by Moody's) falling below 2.0x post refinancing;
(3) deterioration of the underlying cash; (4) a weakening of the
company's liquidity; and (5) materially adverse regulatory changes.
LIST OF AFFECTED RATINGS:
Affirmations:
..Issuer: Intralot S.A.
.... Corporate Family Rating, Affirmed
at B1
.... Probability of Default Rating,
Affirmed at B1-PD
..Issuer: Intralot Capital Luxembourg S.A.
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed at B1
Assignments:
..Issuer: Intralot Capital Luxembourg S.A.
....Backed Senior Unsecured Regular Bond/Debenture,
Assigned at (P)B1
Outlook Actions:
..Issuer: Intralot S.A.
....Outlook, Remains Negative
..Issuer: Intralot Capital Luxembourg S.A.
....Outlook, Remains Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Gaming Industry
published in June 2014. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Headquartered in Athens, Greece, Intralot, a publicly
listed company, is a leading vendor in the gaming sector as well
as a licensed gaming operator. Intralot designs, develops,
operates and supports custom-made gaming solutions and provides
innovative content, services and technology to lottery and gaming
organisation on a global scale with presence across 52 jurisdictions worldwide,
employing approximately 5,200 people.
For the last twelve month (LTM) ended 30 June 2017, Intralot generated
revenues of approximately EUR1.4 billion and reported an EBITDA
of EUR179 million pro forma for the 2016 disposals of the Italian and
Peruvian operations.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Donatella Maso
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
