Scientific Games seeks to refinance $1.2B of long-term debt

Howard Stutz has over 30 years of experience reporting on the gaming industry.

Gaming equipment provider Scientific Games is looking refinance $1.2 billion of the company’s long-term debt, announcing an offering of new notes that will extend the current maturities up to seven years.

The move comes less than week after the Las Vegas-based company impressed the investment community with third quarter earnings in which revenues rose 4% and the company’s net income of $18 million reversed a net loss from a year ago.

The day earnings were announced, Scientific Games shares rose more than 17% on the Nasdaq, closing at a 52-week high of $31.63.

In a statement Tuesday, the company said it would use the funds, along with cash on hand, to pay off $1.2 billion of notes due in 2022 and pay off $244 million in debt due next year. Late Tuesday, the company said it priced $700 million of notes due in 2028 and $500 million of notes due in 2029

During the quarterly earnings call, Scientific Games CEO Barry Cottle said debt reduction is a primary effort for the company, which carries long-term debt of $8.6 billion at the end of September.

Jefferies gaming analyst David Katz told investors Tuesday the efforts from the debt refinancing may have already been priced into the company’s shares.

“The announced refinancing efforts are neutral for the shares for two reasons,” Katz said in a research note. First, it follows through on management’s commentary as expected and capitalizes on a favorable credit market. Second, it adds incrementally to our free cash flow estimate the next two years of (roughly) $300 million by more than 10%.”

Shares of Scientific Games closed at $30.53, up 70 cents or 2.33%.

Last week, Union Gaming Group analyst John DeCree said he expects Scientific Games to meet or exceed its net leverage to cash flow ratio targets by the end of 2020.

“With consistent free cash flow generation, we see a path to rapid deleveraging and a significant transfer of value from debt to equity,” DeCree said.