An announcement by diversified gaming supplier Scientific Games that its SG Interactive division is an unrestricted subsidiary that could be considered for an initial public offering drew mixed reactions from the company’s stakeholders, according to a Bloomberg report.
In a nutshell, shareholders are pleased with the news and bondholders are not.
The company’s interactive unit is among the fastest-growing segment of the lottery and gaming supplier’s business, estimated at a worth between $875 million and $1 billion, or $10 to $11.50 per share of Scientific Games, according to an analysis by Union Gaming. After the September 7 announcement of a possible IPO, shares in the company jumped nearly 17 percent. The company’s bonds, meanwhile, fell and remained low.
“They’re moving value away from bondholders to the equity holders,” said Union Gaming analyst John DeCree in an interview with Bloomberg. “That’s why we’ve seen the divergent trade.”
Bondholders are worried that proceeds from the interactive unit may not be available to pay down the debt they hold. “Given what has happened with other issuers due to the opportunistic use of unrestricted subsidiaries, bondholders are right to be concerned,” Anthony Canale, head of high-yield research at Covenant Review, told Bloomberg. “Bondholders are skittish about this because the company now has a freer hand with those assets.”
Scientific Games Chief Financial Officer Michael Quartieri issued a statement to Bloomberg News seeking to assure bondholders that cash generated by the subsidiary will still be available for debt service.
“Designating our social-gaming entities as unrestricted subsidiaries allows Scientific Games to pursue a wide range of options to generate greater value for our company and our investors, including our debt holders,” Quartieri said. “Following the unrestricted designation, the social-gaming entities are wholly owned by Scientific Games and continue to support the growth of our company and our goal of delivering the business.”
