Casino supplier consolidation increases debt & credit risk: Fitch

Credit Ratings Service, Fitch Ratings, has sounded the alarm about rising debt levels among casino suppliers, a segment, Fitch says, that has historically been debt adverse.
“We believe investors should pay special attention to casino suppliers' free cash flow (FCF) profiles given their sizable exposure to variable rate debt and the likely upward trajectory of short-term rates over the next 1-3 years,” the ratings company says in a commentary released yesterday.
Fitch said four recent acquisitions (including Multimedia Games' acquisition by Global Cash Access announced on Monday) over the past two months will place about $22 billion of debt on about $3.7 billion of EBITDA excluding synergy benefits.
This translated into debt levels three times higher than in 2012 before the wave of consolidation began.
“Higher leverage and rising interest rates may make refinancing on acceptable terms challenging when the suppliers' cheap short-term rate debt starts coming due in early 2020s,” the Fitch report said.
Fitch also drew attention to a “a weak slot machine replacement cycle while new casino openings between the end of this year and late 2016 will be sparse.”