Powered by a positive outlook for its lottery business, Scientific Games (SG) has been given a ‘B’ grade by Fitch Ratings.
The credit rating agency released its evaluation of SG last week, providing the ‘B’ with a stable outlook.
According to Fitch Ratings, here is why Scientific Games received the aforementioned grade:
“The ‘B’ IDR reflects SG Lottery’s high leverage as well as its solid market position in the lottery industry that generates high margins, durable cashflows and discretionary FCF, despite a combination of price pressures and high interest rates which have delayed deleveraging through both EBITDA growth and debt prepayments.
“Fitch expects new contract wins and softening input prices to support free cash flow in 2024. Fitch also recognizes several cash outflows were one-time in nature related to the 2022 Light & Wonder divestiture. Future deleveraging is expected through either voluntary prepayments or EBITDA growth.”
What a Fitch Rating means
Fitch Ratings Inc. is considered among the top credit rating agencies and has headquarters in New York City and London.
The long-term credit ratings Fitch provides can be somewhat confusing. They are on an alphabetic scale going from ‘AAA’ all the way down to ‘D.’
On top of the letters, Fitch also uses +/- modifiers for categories between ‘AA’ and ‘CCC.’
The ‘B’ grade for Scientific Games puts it in the “highly speculative” category, according to Fitch.
That grade comes with the following description:
“’B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.”
Retail, iLottery driving Scientific Games
One of the strengths of Scientific Games in the eyes of Fitch is its range of lottery products.
Fitch identifies SG as one of the leading operators in the global instant lottery ticket business. Its company-estimated market share is about 70% globally.
By operating in over 50 countries and 40 US jurisdictions, it gives Scientific Games the ability to remain competitive as new markets and opportunities open up.
Fitch views lottery as a more favorable industry when compared to other forms of gambling. It exhibits less cash flow volatility and has broad appeal. Lottery has also sustained low-to-mid single-digit growth rates even when there was economic stress across the globe.
The lottery industry has positive spend-per-capita trends even as casino development has expanded a great deal over the last 20 years, as well.
The introduction of iLottery in multiple states, with more discussion of the potential to add online lottery, is an additional growth driver for the industry. Fitch expects SG to also be a major player in the iLottery markets.
Scientific Games features lower rating than IGT
The Scientific Games Lottery credit profile puts it with some other notable companies that are in the gambling industry.
Its mid-to-high ‘B’ rating is comparable to:
- Bally’s Corp.: B+/Negative
- Great Canadian Gaming Corp.: B+/Stable
However, it finds itself on a lower tier than some of the relevant gaming suppliers:
- Light & Wonder: BB/Stable
- Aristocrat: BBB-/Positive
- Everi Holdings: BB-/Rating Watch Positive
One of its top competitors in the lottery industry, International Game Technology (IGT), was given a ‘BB+/Rating Watch Positive‘ rating earlier this year. The better rating for IGT was due to having meaningfully higher leverage in the eyes of Fitch.
Image by PlayiLottery
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