Fitch Ratings has affirmed
The Outlook on the IDR remains Negative. Fitch has also affirmed senior secured ratings of debt issued by companies of 888 Group at 'BB+' with a Recovery Rating at RR2'. A full list of rating actions is detailed below.
The Negative Outlook reflects continuing uncertainty over the potential impact on its credit profile from the regulation overhaul in 888's core market. A delay in the
The 'BB-' IDR continues to reflect the strong combined business profile of 888 and
Key Rating Drivers
Profitability Improvement Contingent on Synergies: 888 has realised
Smoother Deleveraging Pace: Higher profitability and a focus on deleveraging have resulted in a smoother deleveraging pace compared with our previous rating case. We now expect 888's EBITDAR net leverage at only slightly above its negative rating sensitivity of 6.0x in 2023, compared with our previous forecast of 6.7x. By end-2026, ahead of large maturities in 2027-2028 we expect 888 to deleverage to 4.4x, a comfortable level for the 'BB' category.
Regulatory Impact Anticipated: Similar to its peers, 888 has been rolling out responsible gaming and customer safety measures since 2021 in anticipation of regulation change in the
We do not exclude more strict restrictions and forecast low single-digit revenue decline in
Low Fixed Charge Cover: Despite an increase in forecast EBITDA, 888's fixed charge cover will likely remain around the negative sensitivity of 1.8x, at least until 2025. High debt quantum and high interest cost will continue to erode EBITDA cash conversion. However, interest on 70% of its debt remains hedged, which reduces the downside for further fixed charge cover deterioration.
Corporate Governance Record: Know Your Client procedure failures that led to a VIP accounts freeze in
Share of Less Regulated Markets: Despite receiving 95% of revenue from locally regulated or taxed markets as of 2Q23, 888 continues to actively develop its growth and pipeline markets, some of which are not fully regulated. Their higher profitability may provide a boost to margins and improve brand perception in case these markets become regulated. However, they also have higher volatility of revenues and profits over the medium term, including extreme cases of part or full market closures or legal challenges and claims.
Strong Brand Portfolio: Both WHI and 888 enjoy strong brand recognition in the
Derivation Summary
888's post-acquisition business profile can be compared with
All three entities have high exposure to the
Post-acquisition, 888 has a similar scale to but is more leveraged than
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Annual revenue growth of around 1% in 2024-2025
Synergies of around
EBITDAR margin of 19% in 2023 and around 21% in 2024, driven by synergies
Non-recurring expenses averaging around
Capex at around 4% of revenues to 2026
No dividends in 2023-2026
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Upgrade:
Evidence of EBITDAR margin being maintained above 15% following successful integration of the WHI business
Sustained low single-digit FCF margins after dividends
Evidence of adjusted net debt/EBITDAR trending lower towards 5.0x
EBITDAR fixed charge cover above 2.5x on a sustained basis
Factors That Could Individually or Collectively, Lead to the Outlook Being Revised to Stable:
Increased visibility over regulation in the
Successful integration of the WHI business with delivery of identified synergies
Neutral to positive FCF after dividends
Visibility that management is adhering to a more conservative financial policy, with adjusted net debt/EBITDAR trending below 6.0x on a sustained basis
Factors That Could, Individually or Collectively, Lead to Downgrade:
EBITDAR margin below 12% due to increased regulatory pressure or failure to effectively integrate the WHI business
Negative FCF after dividends
Adjusted net debt/EBITDAR above 6.0x on a sustained basis
EBITDAR fixed charge cover maintained below 1.8x
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Solid Liquidity, Concentrated Maturities: As of
We expect FCF margin to turn positive from 2024, but not sufficiently for full debt repayment at maturity. We therefore expect 888 will aim to refinance a majority of its outstanding debt well ahead of maturities.
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
888 has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to increasing regulatory scrutiny of the sector, particularly in the
888 has an ESG Relevance Score of '4' for Corporate Governance - Board Independence and Effectiveness, Ownership Concentration due to recent unanticipated top management rotations, and regulator's concerns over suitability of one of its minority shareholders.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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