Fitch: Path to Deleveraging Arduous for US Gaming Suppliers

NEW YORK--(BUSINESS WIRE)-- U.S. high yield gaming suppliers have a challenging road ahead when it comes to deleveraging, according to Fitch Ratings. 2015 was an especially tough year for slot suppliers with a lull in new openings relative to 2014 and we believe the slowdown in new casino openings in North America and the chronically tepid replacement cycle will keep slot sales soft.

It will likely take some time for International Game Technology PLC (IGT) and Scientific Games Corp. (SGMS) to reach their respective 4.0x and 5.0x leverage targets. The continued weakness in the slots segment and -- for IGT -- lottery concession renewals will keep leverage elevated closer to 5.0x for IGT and 7.0x for SGMS over the next 1-2 years. We believe these pressures will offset much of the merger synergy benefits.

The impressive lineups demonstrated by IGT and SGMS at 2015 Global Gaming Expo (G2E) should help stem participation market share loss to Aristocrat Leisure. However, we think downside risk remains for IGT's and SMGS's participation business given the overall shrinking participation footprints and that the slots sector remains highly competitive.

We do not foresee any game-changing slot innovations that will motivate wholesale slot floor replacements a la ticket-in ticket-out (TITO) and low volatility video slots. Instead, we see mobile gaming technology (e.g. social gaming, bring-your-own-device gaming) becoming more prominent, which may reduce demand for traditional cabinets. Positively, the larger suppliers have good exposure to mobile gaming.

IGT's and SGMS's exposure to lottery is a positive because of the lottery has better secular prospects relative to slots. However, lottery is cash flow intensive, competitive, and is subject to concession renewals. We view SGMS's lottery business more favorably, given its lower concertation and heavier skew toward instant tickets.

Fitch discusses trends and drivers pertinent to gaming suppliers in our new report titled, "An Arduous Path to Deleveraging for Gaming Suppliers," which is available on our website at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

An Arduous Path to Deleveraging for Gaming Suppliers (A Credit Investor's Guide to High-Yield Gaming Suppliers)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873803

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View source version on businesswire.com: http://www.businesswire.com/news/home/20151217006027/en/

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Source: Fitch Ratings

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