International Game Technology (IGT; Ba1/BB+ CW Pos/BBB-) Follow up on Apollo Acquisition

• Unclear still if the bump in expected cash proceeds will mean more deleveraging than expected. S&P has taken the co's previous guidance of $2b from the $2.6b total cash proceeds (now $4.05b). We'd note it's mentioned equity holder returns as well in presser and its equities are +19%.
• Guidance is currently for FY24 revenue of $4.4b, EBIT margin of 21% (~$0.9b), operating cash flows >$1b and capex of $500m. Consensus is waiting there on all metrics and this is for entire group including gaming. Note Gaming - the part being sold - is 36% of group revenues.
• It has $5.7 of gross (incl. leases) and net of the $0.4m in cash $5.3 in debt. Against current consensus FY24 EBITDA ($1.7b) it leaves it 3.4x/3.1x levered. Pro-forma on $2b paydown and EBITDA being cut to $1.2b (it said in 1Q earning call this was pro-forma) we see it moving to 2.75x/3.1x - S&P has 3x.
• It can easily move into S&P's upgrade threshold for 2-notch upgrade - which is leverage sustained below <3x - but that will depend on a financial policy it states for going forward (i.e. if it commits to staying below).
• Call structure there but 28s are low coupon/option adjusted is not pricing in any cost over bullet.
• {IGT US Equity} +19%, {EVER US Equity} +32% {APO US Equity} unch

Original plans here and new plans here.

Material subsidiary definition is total assets >5% and EBITDA >5% (we are referring to $ prospectus - may be different for €28s). Latter definitely ticked on this sale but Event of Default clauses unclear to us if its giving protection to cessation of business - any prob. of par put doesn't seem to have been priced in by bonds since Feb, we go on side of caution for now and say no.