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Rating Action:

Moody's upgrades AP Gaming's CFR to B2 following IPO and debt reduction

30 Jan 2018

New York, January 30, 2018 -- Moody's Investors Service, ("Moody's") today upgraded AP Gaming I, LLC's ("AP Gaming") Corporate Family Rating to B2 from B3. The company's $515 million senior secured term loan due 2024 and $30 million senior secured revolver due 2022 were affirmed at B2, and the company's Probability of Default Rating was affirmed at B3-PD. The Speculative Grade Liquidity Rating is SGL-2 and the rating outlook is stable.

The upgrade of the Corporate Family Rating to B2 follows the company's successful initial public offering of common stock and the use of net proceeds to repay the company's existing senior PIK notes (unrated), of which $154 million was outstanding as of year-end. The repayment of the PIK notes results in a significant reduction in leverage to under 5.0x on a pro-forma basis, below our previously stated upgrade trigger of 5.5x. The upgrade is further supported by the company's continued year over year growth in revenue and earnings driven by its growing installed base and equipment sales of electronic gaming machines. The proposed repricing of the company's term loan would also reduce cash interest expense for the company.

Upgrades:

..Issuer: AP Gaming I, LLC

.... Corporate Family Rating, Upgraded to B2 from B3

Outlook Actions:

..Issuer: AP Gaming I, LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: AP Gaming I, LLC

.... Probability of Default Rating, Affirmed B3-PD

....Senior Secured Bank Credit Facility, Affirmed B2(LGD3)

RATINGS RATIONALE

AP Gaming's B2 Corporate Family Rating considers the company's pro-forma leverage of just under 5 times with the expectation the company will continue to delever, primarily through continued growth in earnings. The rating also considers AP Gaming's small size in terms of revenue and EBITDA, both as an absolute number and as compared to its peers. The rating is supported by the company's significant operating margins and recurring revenue profile along with its growing installed base and earnings. AP Gaming's geographic and customer concentration profile, while still elevated, continue to improve as a result of organic growth as well as several acquisitions, the largest being the acquisition of Cadillac Jack subsidiary from Amaya Gaming in May 2015.

AP Gaming's Speculative Grade Liquidity rating of SGL-2 indicates good liquidity. We expect AP Gaming's cash on hand and cash flow generation will be sufficient over the next 12 months to cover all debt service and capital expenditure needs. The company has access to a $30 million revolver which is expected to remain undrawn and matures in 2022. We also expect the company will maintain good cushion under its maximum first lien net leverage ratio covenant.

The stable rating outlook considers our view that AP Gaming will use its free cash flow to invest in initiatives designed to grow earnings and expand the company's geographic footprint as opposed to absolute debt reduction. The stable outlook also reflects AP Gaming's high level of recurring revenue and multi-year contracts it has with customers, strong contract retention rates and good liquidity profile.

Although unlikely in the near term, a higher rating could result if AP Gaming is able to grow its earnings and achieve and maintain leverage below 4 times debt/EBITDA while maintaining a good liquidity profile. A higher rating would also require continued reduction in both geographic and customer concentration, as well as an increase in scale.

Ratings could be downgraded if AP Gaming's earnings or liquidity profile materially deteriorate for any reason. The rating could be lowered if the company's leverage were to increase to over 5.5x.

AP Gaming is a designer and supplier of casino gaming products. The company's products are primarily sold into the Class II Native American market and Class III commercial gaming marketplace. The company's products include electronic gaming machines, tables games, as well as interactive social games available on mobile devices. Revenue reported for the last twelve month period ended September 30, 2017 was approximately $197 million.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

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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.

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Adam McLaren
Asst Vice President - 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

Janice Hofferber, CFA
MD - Corporate Finance
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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