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Rating Action:

Moody's assigns Ba3 rating to International Game Technology PLC's proposed benchmark notes offering

08 Jun 2020

New York, June 08, 2020 -- Moody's Investors Service ("Moody's") assigned a Ba3 rating to International Game Technology PLC's ("IGT") proposed benchmark senior secured notes offering due 2029. The company's existing ratings, including the senior secured notes rated Ba3, the Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating and SGL-3 Speculative Grade Liquidity rating are unchanged. The outlook is unchanged at negative.

Proceeds from the proposed senior secured notes offering, which will be pari passu with the company's existing senior secured debt, are expected to be $500 million and will be used to tender for $300 million of the company's $1.5 billion 6.25% notes due 2022, put cash to the balance sheet, repay a portion of the outstanding amount on the company's revolving credit facility, as well as pay related fees, expenses, premiums and accrued interest.

The transaction is credit positive because it extends IGT's maturity profile and modestly improves overall financial flexibility, providing funds to facilitate the partial refinancing of a significant 2022 maturity, while maintaining adequate liquidity as the company continues to face disruption in casino visitation, gaming machine use, and lottery operations resulting from efforts to contain the spread of the coronavirus both in the US and in Italy. The growing number of gaming facilities reopening will favorably increase revenue for the company, but Moody's anticipates activity levels will remain well below pre-pandemic levels until at least 2022.

The following ratings/assessments are affected by today's action:

Assignments:

..Issuer: International Game Technology PLC

....Senior Secured Global Notes, Assigned Ba3 (LGD3)

RATINGS RATIONALE

International Game Technology PLC's Ba3 CFR reflects the meaningful revenue and earnings decline over the next few months expected from efforts to contain the coronavirus and the potential for a slow recovery once customer facilities reopen and gaming conditions improve. Revenues are largely tied to the volume of gaming machine play and lotteries. Gaming is cyclical and dependent on discretionary consumer spending. The company can reduce spending on game development and capital expenditures when revenue weakens, but the need to retain a skilled workforce to maintain competitive technology contributes to high operating leverage. The credit profile benefits from IGT's large and relatively stable revenue base during normal operating periods, with more than 80% achieved on a recurring basis, and high barriers to entry. Further support is provided by the company's vast gaming-related software library and multiple delivery platforms, as well as potential growth opportunities in IGT's digital, mobile gaming, sports betting, and lottery products. IGT, through its joint venture with minority partners, is concessionaire of the world's largest instant ticket lottery (Italy) and Italy's draw based lottery and holds facility management contracts with some of the largest lotteries in the US. IGT is constrained by its material exposure to soft slot replacement demand trends in the US as well as significant revenue concentration (about one-third) coming from its Italian operations, along with Italian gaming tax increases.

The speculative-grade liquidity rating of SGL-3 considers the expected decline in earnings and cash flow. As of the year ended March 31, 2020, IGT had unrestricted cash of approximately $1.5 billion, with $743 million of undrawn capacity on its $1.75 billion revolving credit facility that expires in July 2024. Moody's estimates the company could maintain sufficient internal cash sources after maintenance capital expenditures to meet required annual amortization and interest requirements assuming a sizeable decline in annual EBITDA. The expected EBITDA decline will not be ratable over the next year and because EBITDA and free cash flow will be negative for an uncertain time period, liquidity and leverage could deteriorate quickly over the next few months. The company amended its financial covenants and is now subject to a minimum liquidity covenant of $500 million (cash and undrawn committed revolver) through June 2021. Beginning with the quarter ended September 2021, the company will be subject to a 6.25x net leverage covenant which we expect the company to comply with.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The gaming sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in IGT's credit profile, including its exposure to travel disruptions and discretionary consumer spending have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and IGT remains vulnerable to the outbreak continuing to spread.

Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The ratings and outlook reflect the impact on IGT of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

The negative outlook considers that IGT remains vulnerable to travel disruptions and unfavorable sudden shifts in discretionary consumer spending and the uncertainty regarding the timing of its customers' facilities reopening and the pace at which consumer spending at those properties will recover.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Ratings could be downgraded if liquidity deteriorates or if Moody's anticipates IGT's earnings declines to be deeper or more prolonged because of actions to contain the spread of the virus or reductions in discretionary consumer spending.

A ratings upgrade is unlikely given the weak operating environment. However, the ratings could be upgraded if customer facilities reopen and earnings recover such that positive free cash flow and reinvestment flexibility is restored and debt-to-EBITDA is sustained below 5.0x.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

International Game Technology PLC is a global leader in gaming, from Gaming Machines and Lotteries to Interactive Gaming and Sports Betting. The publicly-traded company operates under four business segments: North America Gaming & Interactive, North America Lottery; International, and Italy. The company's consolidated revenue for the last twelve-month period ended March 31, 2020 was approximately $4.6 billion. International Game Technology has corporate headquarters in London, and operating headquarters in Rome, Italy; Providence, Rhode Island; and Las Vegas, Nevada.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Adam McLaren
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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