Light & Wonder Wraps Up Lottery Sale, Aims to Slash Debt, Buyback Stock

Posted on: April 5, 2022, 01:35h. 

Last updated on: April 5, 2022, 02:56h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Light & Wonder (NASDAQ:SGMS) has completed the previously announced sale of its SG Lottery unit, putting the gaming company on track to go about reducing its debt burden.

Light & Wonder
Light & Wonder, previously known as Scientific Games, headquarters in Las Vegas. The company is reducing debt by $5 billion. (Image: Jeff Scheid/Nevada Independent)

Previously known as Scientific Games, Light & Wonder last October announced the sale of its lottery unit to Brookfield Business Partners LP (NYSE:BBU) for up to $6.05 billion. In a statement, the Las Vegas-based slot machine manufacturer said it grossed proceeds of $5.8 billion on the transaction, meaning it cleared $5 billion after taxes.

The company plans to use the net proceeds from the sale of the Lottery Business to pay down approximately $5.0 billion of its existing debt, by reducing and refinancing its SGI Term Loan B-5 and paying off certain outstanding notes,” it said in the statement.

The company reported a debt of $8.8 billion as of September 30, 2021, indicating the lottery divestment is a material part of efforts to trim that debt load.

Good Timing for Light & Wonder to Reduce Debt

With the Federal Reserve recently unveiling the first of what could be up to seven interest rate increases this year, it’s an ideal time for Light & Wonder to pare its liabilities.

Rising interest rates can lead to higher financing costs, particularly for junk-rated companies. Light & Wonder fits that bill. In its first grade from Fitch Ratings, the company was tagged with a “BB” mark. Declining leverage positions any issuer for an upgrade, and the gaming firm has that potential with its debt burden declining by $5 billion.

Had the lottery transaction wrapped up before the end of 2021, Light & Wonder’s net debt leverage ratio would have been 3.9x, compared to the actual figure of 6.2x.

“The Company anticipates that it will achieve a net debt leverage ratio within its target range of 2.5x to 3.5x following the completion of the previously announced sale of its Sports Betting Business, which is expected to occur in the third quarter of 2022,” it said in the statement.

Last September, the company said it was selling its OpenBet sports wagering unit to Endeavor Group Holdings, Inc. (NYSE:EDR). Endeavor is the parent company of the Ultimate Fighting Championship (UFC), and the sale was for $1.2 billion in cash and equity.

Share Repurchase Plans

Light & Wonder recently announced a three-year, $750 million share buyback plan, joining a growing number of gaming firms in pursuing that avenue of shareholder rewards.

Since the announcement the company has been actively repurchasing shares, reflecting its strengthened balance sheet, the recurring nature of its revenue, strong cash flow generation and the value in its shares,” it said.

Light & Wonder adds that its priorities for capital deployment are buybacks, debt reduction, and internal investments. That indicates that it won’t be pursuing mergers and acquisitions unless deal-making appears to be a better use of cash than the aforementioned avenues.

Last July, Scientific Games offered an 11% premium to acquire the 19% of SciPlay it doesn’t own to boost its digital exposure. However, it abandoned that offer last December.