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Rating Action:

Moody's assigns Ba2 to Georgia Worldwide's proposed secured notes; Ba2 CFR, stable outlook

30 Jan 2015

New York, January 30, 2015 -- Moody's Investors Service today assigned a Ba2 Corporate Family Rating and a Ba2-PD Probability of Default Rating to Georgia Worldwide PLC. A Ba2 rating was also assigned to the company's proposed USD5 billion equivalent debt offering comprised of approximately USD3.5 billion senior secured notes and approximately €1.2 billion senior secured notes to be issued in multiple tranches with maturities ranging from 3 years to 10 years.

On July 16, 2014, GTECH S.p.A (GTECH) entered into an agreement to acquire International Game Technology (IGT) through the formation of Georgia Worldwide PLC (Georgia). GTECH is a global operator and supplier of online lottery systems, is the sole concessionaire of the world's largest lottery in Italy, and has a growing presence in machine gaming, instant ticket printing, and sports betting. IGT specializes in the design, development, manufacture, and marketing of casino-style gaming equipment, systems technology, and game content. The total uses of funds in conjunction with the acquisition is approximately USD7.0 billion, or approximately €5.8 billion.

The ratings of GTECH (Baa3) and IGT (Baa2) remain on review for downgrade. Once the transaction closes, Moody's expects to lower the ratings of the GTECH notes assumed by Georgia to Ba2 from Baa3, and the IGT notes that are assumed by Georgia to Ba2 from Baa2, as these notes will have a similar ranking and guarantee as the Georgia notes, and for the most part, secured by similar assets. At closing, Moody's expects to complete the review process by also withdrawing GTECH's Baa3 Corporate Family Rating and IGT's Baa2 senior unsecured rating as these organizations will no longer exist.

Proceeds from the new note offering will initially be placed into escrow. Once the transaction closes (expected in second quarter of 2015) the funds will be released from the escrow account and used to pay the cash consideration for the IGT acquisition, acquisition related expenses, and to repay certain existing debt of GTECH and IGT. In addition to the proposed notes, sources for the transaction will include a drawdown from a USD1.5 billion and €850 million multicurrency revolving credit facility (not rated) that was put in place by GTECH in November 2014, a new €800 million 4-year term loan (not rated), and some balance sheet cash.

New Ratings Assigned to Georgia Worldwide PLC:

Corporate Family Rating -- Ba2

Probability of Default Rating -- Ba2-PD

Stable rating outlook

USD3.5 billion senior secured notes - Ba2(LGD3)

€1.2 billion senior secured notes - Ba2(LGD3)

Moody's expects to formally assign a Speculative Grade Liquidity rating to Georgia once the transaction closes and the company's actual liquidity profile is more defined.

RATINGS RATIONALE:

Georgia's Ba2 CFR is supported by the company's large scale in terms of revenue and EBITDA. Georgia will be the largest global group in terms of lottery management and the manufacturing and management of gaming machines. Additionally, about 80% of the company's pro forma revenue is contract-based and of a recurring nature. Positive rating consideration is also given to Moody's opinion that Georgia will own a successful portfolio of gaming titles that it can utilize and cross-sell globally among its various distribution platforms. Additionally, Moody's believes Georgia is strongly positioned to benefit from the growing trend in digital and mobile gaming and lottery products as the company will already have a substantial and successful social gaming and digital products operations through the combination of GTECH and IGT.

Key credit concerns include the unfavorable impact Moody's believes the decline in US regional gaming will have on demand for slot replacement. About 25% of Georgia's pro forma revenue will be related to gaming machines located in US casinos. Additionally, the pace of new casino openings is slowing considerably, and as a result, Moody's is of the opinion that the slot business is increasingly vulnerable to competition for market share. Continued declines in the slot business without an equivalent or better offset in the company's other business segments could rapidly increase the company's leverage from its pro forma level of about 4.6 times.

In addition to its heavy concentration in US slots, Georgia has a significant revenue concentration coming from Italy, at about 35%., a majority of which comes from two exclusive concessions, one for the operation of the Lotto game and one for instant tickets. The Lotto contract expires in June 2016 and is currently up for re-bid. The instant ticket concession will expire in September 2019. The ratings incorporate our assumption that Georgia will continue GTECH's successful track record of renewing its Italian lottery contracts. In Moody's opinion, Georgia's large scale in the lottery industry is an advantage with respect to barrier to entry given the large installed base of the company's point-of-sale terminals and high capital investment that would be necessary to replicate its systems and software. Also, despite the inherent geographic concentration concern, these contracts have performed well.

The Ba2 assigned to Georgia's proposed senior secured note offerings considers its pari passu ranking to the company's senior secured credit facilities and to the existing debt issues that the company will assume from IGT and GTECH as part of the merger.

The stable rating outlook takes into accounts Moody's view that Georgia's considerable capital expenditure plans in 2015 and 2016, along with a weak outlook with respect to slot replacement, will make it difficult for the company to reduce leverage and generate a meaningful amount of free cash flow during the next two years, despite the management's stated intention to do so. And while expense synergies are possible during the next two years, in Moody's view, any cost reductions the company is able to achieve during that period will provide some level of downside protection to earnings as opposed to earnings improvement.

The stable outlook also considers the lack of material debt maturities over the next 3 years along with Moody's expectation that Georgia will comfortably remain in compliance with the interest coverage and net debt leverage financial maintenance covenants contained in its credit facilities. The stable outlook also incorporates Moody's assumption that Georgia will retain its Italy lottery contract which expires in 2016 and is currently up for re-bid.

A ratings upgrade is not likely in the next two years given Moody's view that the Georgia will be challenged to reduce leverage during that period. A higher rating is possible over the longer-term and would require that the company successfully demonstrate sustainable earnings growth through a combination of revenue and expense improvement, as well as achieve a positive free cash flow profile and debt/EBITDA below 4.0 times.

Ratings could be lowered if it appears that business conditions will make it difficult for Georgia to maintain debt/EBITDA below 5.0 times. Ratings could also be downgraded if the company is not successful in retaining the Italy lottery contract for any reason.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Keith Foley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Janice Ann Hofferber
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba2 to Georgia Worldwide's proposed secured notes; Ba2 CFR, stable outlook
No Related Data.
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