Under US Scrutiny, Intralot Sheds Greek Lottery Stake to Shore up Flimsy Finances

Posted on: July 29, 2019, 04:30h. 

Last updated on: July 30, 2019, 05:16h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Intralot, the Greek gaming company at the center of controversy in Montana and the District of Columbia, recently announced the sale of its 16.5 percent stake in Hellenic Lotteries for $22.2 million, a move aimed at shoring up a balance sheet that has drawn scrutiny in the US.

Intralot executives discuss a deal in Illinois. The company recently sold its Hellenic Lotteries stake. (Image: European Gaming)

Intralot is selling the lottery investment to the Greek Organization of Football Prognostics (OPAP), a move Moody’s Investors Service views as “credit positive.”

This will ease the company’s ability to meet upcoming obligations and reduce pressure on liquidity, with a cash position estimated to be at approximately $144.60 million at the group level in the third quarter of 2019,” said the ratings agency.

Earlier this month, the DC City Council voted 7-5 in favor of awarding a five-year, $215 million contract to Intralot to manage the city’s sports betting platforms. That deal has been scrutinized for months with critics claiming the bidding process wasn’t competitive and that at least one city council member’s ties to Intralot posed conflict of interest issues.

In January, Intralot’s financial health was under the spotlight after Fitch Ratings pared its rating on the company to B- from B while noting another downgrade of the Greek firm’s debt is possible.

Moody’s has a Caa1 grade on Intralot debt with a “negative” outlook. On that firm’s scale, bonds with one of the three Caa ratings “are judged to be of poor standing and are subject to very high credit risk.”

Montana, Too

News of Intralot’s divestment of its position in Hellenic Lotteries was announced less than two weeks after the Montana Lottery Commission was criticized during its meeting about its relationship with the company. A representative of the Gaming Industry Association of Montana said the state’s lottery commission might find itself in a lawsuit if it engaged in a no-bid pact with the company.

Intralot signed a seven-year agreement to manage Montana’s lottery platform in 2015, and that contract includes provisions regarding sports betting. Overall, the company has 13 contracts in 11 states and DC, according to its 2018 annual report. Lottery regulators in other states have not questioned Intralot’s balance sheet health on par with DC’s concerns, but the gaming company remains in a precarious financial position.

“We consider Intralot’s liquidity to be weak: its cash position declined to $1501.17 million in March 2019 from $181.31 million in December 2018,” said Moody’s. “We note the requirements to fund basic operational needs amount to approximately $33.37 million and expect Intralot’s free cash flow to be negative in 2019 despite capital spending significantly lower than in 2018.”

Don’t Bet On Bankruptcy Just Yet

Intralot does not have access to revolving credit in Europe, but that doesn’t put the company on the brink of bankruptcy. It has a credit line in the US worth $20 million that could be doubled to $40 million and it is expected to eventually liquidate an investment in Gamenet Group, one of Italy’s largest gaming companies, that is currently worth $53 million.

Intralot’s probability of bankruptcy is 42 percent, according to Macroaxis data, which is in line with that of the broader consumer discretionary sector and slightly below that of the gaming industry.