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Rating Action:

Moody's assigns first-time rating B1 CFR to 888 Holdings Plc; outlook is positive

27 Jun 2022

NOTE: On June 28, 2022, the press release was corrected as follows: In the first sentence of the third paragraph of the press release, the issuer name was changed to 888 Acquisitions Limited, and in the Regulatory Disclosures section, the ESG disclosure was added as the seventh paragraph. Revised release follows.

London, June 27, 2022 -- Moody's Investors Service ("Moody's") has today assigned a B1 corporate family rating (CFR) and a B1-PD probability of default rating (PDR) to 888 Holdings Plc ("888") based on the proposed acquisition of the international (non-US) business of William Hill ("WHI"), expected to complete on the 1st July 2022. The rating outlook is positive.

The acquisition will be financed with £162.9 million of gross proceeds from the equity raised on the 7th April 2022 through an accelerated book building and a combined proposed £1,017 million equivalent facilities split between USD senior secured term loan B and Euro senior secured notes (split between floating and fixed rate yet to be defined); an additional proposed £759 million equivalent of senior secured term loan A (GBP and EUR) will have a delayed funding to refinance the outstanding William Hill Limited unsecured bonds due 2023 and 2026, benefiting from a change of control clause.

Moody's has also assigned B1 rating on all the proposed new facilities, including the £150 million senior secured revolving credit facility issued by 888 Acquisitions Limited, as they are ranking pari-passu and we view the security as weak. The  security package is represented mainly by collateral pledges and guarantees from all substantial subsidiaries of the group, including collateral and upstream guarantees from the WHI subsidiaries.

The existing CFR on William Hill Limited is withdrawn as the company is to integrate into the 888 group. The rating on the outstanding senior unsecured bonds issued by William Hill Limited was changed to B2 from B1; the noteholder that may choose not to exercise their change of control rights will be granted a security package at the level of William Hill and its subsidiaries but they will not benefit from collateral and guarantees related to the 888 business. Moody's deems such notes to have a lower recovery rate compared to 888 debt.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

888's B1 CFR reflects the business combination of 888's existing business and William Hill's European operations (the US activities will remain with Caesars Entertainment, Inc., B2 stable). The rating also factors in Moody's expectation of the impact of UK online market regulatory changes likely to take effect in 2023.

The rating is supported by the combined group: (1) increased scale and enhanced business profile, including product diversification with the increase in sports betting and retails presence on the high street; (2) established and popular brands with important market position in large key gaming markets (UK, Italy, Spain); (3) competitive advantage stemming from 888's proprietary technology platform which also enable to pro-actively monitor clients behavior and provide players with appropriate safe guarding measures and (4) good free cash flow generation which will support deleveraging below 5.0x from 2024.

The rating is however constrained by: (1) concentration on the mature UK market representing over 65% of combined revenues and a still sizeable 15% of revenues derived from non-regulated markets; (2) high Moody's adjusted Debt to EBITDA exceeding 6x in 2022 and a weak projected interest cover ratio remaining below 2x until 2024 due to high cost of debt; (3) execution risk stemming from the need to integrated a significant larger company into 888 (WHI accounts for almost two third of the combined group's revenues); (4) the highly competitive nature of the online betting and gaming industry and (5) the ongoing threat of greater regulation and gaming tax increases, particularly in the largest and most established European markets due to social pressure.

ESG CONSIDERATIONS

Moody's assessed the group exposure to social risks as high and relevant to the assigned rating. 888 and William Hill both operate in jurisdictions where the gaming industry is subject to an evolving and tightening regulatory environment aimed at protecting players subject to gambling addiction issues as well as preventing money laundering; the UK is indeed about to tighten regulation for online gaming and the Netherlands has recently chosen to regulate online gaming.

888 is a public company listed on the London Stock Exchange since 2005 with established corporate governance. Prior to the acquisition of William Hill, the company has a track record of operating with limited debt and a clear dividend policy; as a result of the significant debt load incurred as part of the acquisition, 888 aims to reduce leverage to below 3x and it expects to suspend dividends to facilitate a rapid deleverage. The combined group commits to continue its focus in developing and improving  safer gambling processes and raising industry standards to ensure protecting customers remains a top priority.

LIQUIDITY

The combined group's liquidity position is good and supported by (1) material cash flow generation, (2) cash on balance sheet of around £164 million at closing; (3) the undrawn £150 million RCF due in 2028, and; (4) no material debt maturities until 2026.

The RCF benefits from a springing covenant once drawn for at least 40%; applicable level would be 7.65x net debt leverage with no stepdown, leaving plenty of headroom.

Moody's also acknowledges that the acquisition of WHI will trigger the "Change of control" clause on the William Hill Limited unsecured bonds; 888 plans to repay in full the 2023 and 2026 unsecured bonds after closing with proceeds from the term loan A facilities; the noteholders have 90 days after closing of the WHI acquisition to exercise their repayment rights.

RATING OUTLOOK

The positive outlook reflects the view that leverage will trend towards 5.5-5.75x by 2023 and that it has the potential to decrease faster if the company opts for voluntary debt pre-payments in order to achieve the leverage set in its financial policy. Cash flows will continue to be supported by the underlying positive trend in demand in the online gaming sector, the re-entry in the Netherlands later in 2022, as well as the recovery from the pandemic of the retail operations.

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

Upward pressure on the ratings could arise over time if (1) Moody's-adjusted gross leverage falls sustainably below 4.75x; (2) the company's retained cash flow (RCF)/Net debt (as adjusted by Moody's) reaches 15%; (3) Moody's interest coverage is firmly above 2.25x. For an upgrade Moody's also expects the group to have successfully completed the integration of William Hill.

Downward pressure on the ratings could occur if (1) Moody's-adjusted gross leverage is maintained for a prolonged period of time above 5.75x-6.0x; (2) retained cash flow (RCF)/Net debt (as adjusted by Moody's)  deteriorates below 10% and (3) changes to its financial policy resulting in greater appetite for leverage. A downgrade could also occur as a result of materially adverse regulatory actions in one or more of the larger geographies.

LIST OF AFFECTED RATINGS

Assignments:

..Issuer: 888 Holdings Plc

.... LT Corporate Family Rating, Assigned B1

.... Probability of Default Rating, Assigned B1-PD

..Issuer: 888 Acquisitions Limited

....BACKED Senior Secured Bank Credit Facility, Assigned B1

....BACKED Senior Secured Regular Bond/Debenture, Assigned B1

..Issuer: 888 Acquisitions LLC

....BACKED Senior Secured Bank Credit Facility, Assigned B1

Downgrades:

..Issuer: William Hill Limited

....BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to B2 from B1

Withdrawals:

..Issuer: William Hill Limited

.... LT Corporate Family Rating, Withdrawn, previously rated B1

.... Probability of Default Rating, Withdrawn, previously rated B1-PD

Outlook Actions:

..Issuer: 888 Acquisitions LLC

....Outlook, Assigned Positive

..Issuer: 888 Acquisitions Limited

....Outlook, Assigned Positive

..Issuer: 888 Holdings Plc

....Outlook, Assigned Positive

..Issuer: William Hill Limited

....Outlook, Changed To Positive From Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Gaming published in June 2021 and available at https://ratings.moodys.com/api/rmc-documents/72953. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

COMPANY PROFILE

888 Holdings Plc, headquartered in Gibraltar, would be the combined group holding company which has currently a market capitalization on the London Stock Exchange in excess of £900 million; full year 2021 pro forma revenue would be £1.95bn (£2.1 billion factoring in an adjustment for the retail stores being open for the entire year) and £288 million of Ebitda (£380 million with the same adjustment). The combined group would have a strong presence (65% of group revenues) in the UK and a leading market share with also a strong position in core markets like Italy and Spain.

888 is a leading brand operating 100% online and offering casino, poker and sports betting services; it also operates, through Dragonfish, as a technology partner to companies wishing to establish an online gaming presence. FY2021 reported revenues were £712 million. 888 announced on 9 September 2021 to have agreed with Caesars Entertainment, Inc. (B2 stable) the acquisition of all William Hill operations outside the US. WHI is a heritage name amongst the UK bookmakers with about 1.4k licensed betting shops nationally; WHI is also a leading gaming company, with total revenues for FY2021 of £1.2 billion. In 2019 acquired Mr Green & Co AB  to increase its gaming presence in Europe.

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 on https://ratings.moodys.com/rating-definitions.

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 issuer/deal page for the respective issuer on https://ratings.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 ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.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://ratings.moodys.com/documents/PBC_1288235.

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 https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Stefano Cavalleri
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

Mario Santangelo
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

No Related Data.
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