Brokerage Deutsche Bank Securities issued an investment note predicting that supplier Scientific Games Corporation will save around $9 million in annual interest expense as a result of the company’s recent offering of $1.1-billion worth of senior unsecured notes.
The notes are due to mature in 2026, and the company has indicated it will use proceeds to pay down $1billion in unsecured notes maturing in 2022. The company set an issue price of 100 percent for the new, 8.25-percent, notes. The offering is expected to close on March 19.
“We believe the rough costs associated with the repayment of the 10-percent senior unsecured notes will be (about) US$100 million, with US$50 million related to the call premium and an additional US$50 million related to transaction expenses and accrued interest,” said Deutsche Bank analysts Carlo Santarelli and Steven Pizzella in a note issued last week.
“While the call premium and other associated transaction expenses will outweigh the interest expense savings of the refinancing in 2019, we expect the transaction will save (circa) US$9 million in annual interest expense, or US$0.10 in free cash flow per share on an annual basis. This would represent (about) 2 percent accretion to our current 2020 free cash flow per share forecast.”
In February, Scientific Games announced its annual net loss grew to US$352.4 million in 2018 from US$242.3 million the year before, on annual revenue that increased by 9.1 percent to US$3.36 billion.
Scientific Games’ net debt stood at about US$9.05 billion at December 31, compared to nearly US$8.08 billion one year earlier.
Deutsche Bank analysts said they expected Scientific Games’ deleveraging process to be “largely driven by debt reduction in the year”.
“While the extraction of the 10 percent notes is a longer term free cash flow positive, we do not expect the transaction, given the call premium/other associated transaction costs, to help the deleverage process in 2019,” wrote Santarelli and Pizzella.
