Light & Wonder Slashes Debt to $4 Billion from $8.8 Billion

Posted on: April 18, 2022, 04:00h. 

Last updated on: April 18, 2022, 11:22h.

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

Light & Wonder (NASDAQ:SGMS) is firming its balance sheet in a big way, announcing that its debt burden is now $4 billion, down from $8.8 billion.

Light & Wonder
Light & Wonder CEO Barry Cottle announcing the company’s new name last month. The company said it dramatically reduced its debt load. (Image: Business Wire)

Through a series of transactions, including the sale of its SG Lottery unit, the company formerly known as Scientific Games is paring its liabilities at just the right time because the Federal Reserve is raising interest rates.

The company retired its existing $4.0 billion term loan and redeemed $3.0 billion of its secured and unsecured notes using proceeds from the divestiture of the Lottery Business and a new $2.2 billion term loan facility,” according to a statement. “In conjunction with the new term loan, the company also entered into a new $750 million revolving credit facility.”

As a result of the debt reduction, Light & Wonder reduced its net debt leverage ratio to 3.9x from 6.2x. With the addition of the term loan, the average maturity of the company’s debt rises to 6.4 years.

Why It Matters

By trimming its net debt leverage to 3.9x, Light & Wonder is within striking distance of its desired range of 2.5x to 3.5x.

Lower leverage potentially positions the slot machine manufacturer for a credit upgrade in the future. In its initial grading of the company earlier this month, Fitch Ratings tagged Light & Wonder with a junk rating of “BB.” The significant reduction in debt also results in substantial cost savings.

“The company estimates an annualized cash interest savings of $225.0 million as a result of these actions,” it said in the statement.

The Las Vegas-based company will likely need to drive leverage below 3x to attain a credit upgrade. Higher credit ratings mean a company can issue debt with lower interest rates.

Things Looking Up for Light & Wonder

Shares of Light & Wonder are off almost 11% year-to-date, joining other gaming equities to the downside. But debt reduction of the aforementioned magnitude could be a catalyst for the stock.

Additionally, the current market environment isn’t hospitable to debt-laden companies, regardless of industry. Traits in style include debt reduction, generating free cash flow, and shareholder rewards — boxes Light & Wonder checks.

“Share buy-backs to return substantial capital to shareholders now and in the future, with the Company continuing to actively repurchase shares under its $750 million share repurchase authorization,” adds the company.

Light & Wonder also noted it’s taking a disciplined approach to capital spending going forward and that its priorities are lowering debt, share repurchases, and potentially, opportunistic mergers and acquisitions.