Investing.com -- Moody’s Ratings has upgraded Lottomatica Group S.p.A., Italy’s prominent gaming company, to Ba2, while maintaining a stable outlook. The upgrade is applicable to the proposed €600 million new senior secured notes to be issued by the company. The corporate family rating (CFR) and the probability of default rating (PDR) have also been raised to Ba2 from Ba3.

The ratings on Lottomatica’s €565 million senior secured notes due 2028, the €500 million senior secured floating rate notes due 2030, the €500 million senior secured notes due 2030, and the €400 million senior secured floating rate notes due 2031 have been lifted from Ba3 to Ba2.

The funds from the new notes will be utilized to refinance the €565 million senior secured notes due 2028 and to cover fees and expenses. After the merger of Lottomatica S.p.A. into Lottomatica Group S.p.A. on January 1, 2025, all the company’s debt is issued by Lottomatica Group S.p.A.

The upgrade was motivated by the decrease in Apollo Asset Management’s stake in the company to 31.6%, and the company’s consistent strong performance resulting in improved financial metrics. The company’s Moody’s-adjusted gross debt/EBITDA is expected to decrease towards 2x in the next 12-24 months, compared with the previous forecast of 2.5x.

The Ba2 CFR reflects Lottomatica’s strong business profile, good product diversification, and increasing presence in the profitable online segment. The company’s liquidity is supported by consistent strong free cash flow generation. Lottomatica’s ownership structure remains relatively conservative with a 68.4% public shareholder base.

Lottomatica reported a revenue of €2,005 million and EBITDA of €707 million in 2024. This strong organic growth in revenues and adjusted EBITDA was fueled mainly by the online segment, which continues to experience double-digit growth rates.

The successful integration of PWO (previously SKS365) is expected to result in €75 million in synergies by 2026, compared to the acquired EBITDA amount of €72 million.

The company’s liquidity profile over the next 12-18 months is expected to be strong, supported by consolidated cash balances of around €173 million as of December 31, 2024. Further liquidity is provided by access to a fully undrawn revolving credit facility of €447.25 million, and the company expects a healthy free cash flow of more than €100 million in the next 12 months.

The company’s senior secured notes are rated Ba2, in line with the CFR. The stable outlook reflects Moody’s expectation that the company will continue to perform well in all of its segments, allowing the company’s gross debt/EBITDA to remain at or below 2.5x over the next 12-18 months.

Potential factors for an upgrade or downgrade of the ratings include the company’s ability to diversify and grow its product offering and geographical footprint, maintain Moody’s-adjusted leverage below 2.5x on a sustainable basis, and grow its EBIT margin towards 25% while exhibiting good liquidity and generating strong positive free cash flow. Negative pressure on the rating could occur if Lottomatica’s operating performance weakens or if the company’s financial profile weakens such that Moody’s-adjusted leverage increases sustainably to above 3.5x.

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