Fitch Ratings placed a BB+ ranking on International Game Technology (IGT) and on IGT Lottery Holdings. The move was a reaction to the $4 billion sale of IGT’s Gaming and Digital divisions to Apollo Global Management.
A BBB- rating went to IGT’s senior secured debt. Fitch said it had revisited IGT due to “the creation of a pure-play lottery business, which will retain predictable and resilient cash flows, along with a simplified capital structure and net EBITDA leverage below 3.0x at closing, expected in 3Q25.”
The lottery business that Fitch valued so highly comprises 75 percent of the U.S. market and 90 percent of the Italian one. Fitch also cited “longstanding customer relationships primarily with governments, long-term contracts with recurring revenue, and robust renewal rates.”
Once shorn of digital gaming and manufacturing, IGT will be (Fitch expects) of greater resilience and less exposed to recessions and sudden economic shocks. Fitch analysts wrote that the lottery business “exhibits favorable characteristics, such as less cash-flow volatility, stable low-to-mid single-digit growth rates, and higher profit margins.”
Once IGT is a standalone lottery concern, Fitch anticipates that 95 percent of its revenues will be recurring in nature, up from 80 percent at present. This would make cash flow both sustainable and predictable.
“Relationships tend to be governed by long-term contracts and will continue to be diversified across business models, products, and customer,” Fitch analysts reassured their readers. They cautioned that loss of a lottery contract could materially affect IGT, but added that lotteries had successfully converted most of their top-10 incumbent resubmissions.
“The lottery business has considerable periodic cash demands, including upfront license-renewal fees, renewals, and extensions of contracts, which, along with the development of the lottery terminals” impede cash flow, according to the analysts. The new Italian contract, they wrote, will come with significant upfront costs.
They warned that IGT’s free cash flow in the upcoming year and 2026 will be negative, due to lump-sum payments to renew contracts in Texas and New York , as well as Italy. However, “The lottery segment is a strong [free cash flow] generator, historically contributing about 80 percent to IGT’s operations.”
Fitch named Scientific Games and Intralot as IGT’s primary competitors, noting that IGT held contracts in 40 United States jurisdictions, including North Carolina, California, and Colorado, the latter newly gained. “While contracts require renewals, IGT typically retains them through strong performance and value-added services,” the analysts observed.
As for IGT’s existing debt, Fitch noted that the post-divestment company (or “RemainCo”) had set aside $2 billion in sale proceeds to pay down a term loan, “along with other instruments at management’s discretion.” This would bring IGT’s leverage down to 3.5 times cash flow.
Beyond that, IGT faces no near-term debt maturities until 2026. Fitch analysts assumed that the remaining $2 billion in proceeds from the Apollo sale would be disbursed to shareholders, primarily through share buybacks.
They also predicted that 2024 lottery sales will “decline marginally due to a decline in multi-state jackpot revenue from lower jackpot activity and a normalization of product sales from the high watermark last year.” In 2025, sales would rebound slightly, thanks in large part to an increase in the price of MegaMillions tickets, along with new-product sales.
