Rating Action: Moody's assigns first time B3 CFR to Scientific Games Holdings LP; outlook stableGlobal Credit Research - 25 Jan 2022New York, January 25, 2022 -- Moody's Investors Service ("Moody's") assigned Scientific Games Holdings LP ("Sci Games") a B3 Corporate Family Rating ("CFR") and a B3-PD Probability of Default Rating. B2 ratings were assigned to the company's proposed $440 million senior secured revolving credit facility, $1,770 million senior secured first lien term loan, and $750 million Euro denominated senior secured first lien term loan. A Caa2 rating was assigned to the company's proposed $880 million senior unsecured notes. The outlook is stable.Proceeds from the proposed terms loans and unsecured notes, along with nearly $2.5 billion of cash equity, will be used to facilitate the acquisition of the lottery business of Scientific Games Corporation by Brookfield Business Partners L.P. ("Brookfield") as well as pay related fees and expenses.The B3 CFR is supported by the company's strong margins and resilient lottery operations that produce high levels of recurring revenue. The rating reflects the high leverage as a result of the acquisition of the company by Brookfield. Pro-forma for the transaction, leverage is expected to be over 7x for year-end 2021.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: Scientific Games Holdings LP.... Corporate Family Rating, Assigned B3.... Probability of Default Rating, Assigned B3-PD....Senior Secured Multi Currency Revolving Credit Facility, Assigned B2 (LGD3)....Senior Secured 1st Lien Term Loan, Assigned B2 (LGD3)....Senior Secured 1st Lien Term Loan, Assigned B2 (LGD3)....Senior Unsecured Notes, Assigned Caa2 (LGD6)Outlook Actions:..Issuer: Scientific Games Holdings LP....Outlook, Assigned StableRATINGS RATIONALEScientific Games Holdings LP's B3 CFR is constrained by the debt and leverage level following the acquisition of the business by Brookfield Business Partners. Leverage is over 7x at the close of the transaction, with the expectation for deleveraging from continued growth of revenue and EBITDA. Customer concentration within its top ten customers of over 40% represents a risk but is somewhat mitigated by length of relationship and tenor of its contracts. The rating is supported by the company's strong position in instant ticket games, as well as its software and technology products that facilitate lottery games across digital and retail. High levels of recurring revenue supported by contracts, strong margins, and the resiliency of the lottery business provide further support to the rating.The coronavirus outbreak and the government measures put in place to contain it continue to disrupt economies and credit markets across sectors and regions. Although an economic recovery is underway, the recovery is tenuous, and continuation will be closely tied to containment of the virus. As a result, a degree of uncertainty around our forecasts remains. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Scientific Games Holdings also remains exposed to discretionary consumer spending that leave it vulnerable to shifts in market sentiment in these unprecedented operating conditions.The company is exposed to corporate governance risk given the private equity ownership structure and an aggressive financial strategy. This includes elevated leverage levels.As proposed, the new credit facilities are expected to provide covenant flexibility that if utilized could negatively impact creditors. Notable terms include the following incremental debt capacity up to the sum of $440 million and 100% of consolidated EBITDA on a pro forma basis for the most recently ended four quarter period plus unused capacity reallocated from the general basket, plus additional amounts so long as pro forma first lien net leverage does not exceed closing date leverage by more than 0.25 (if pari passu secured). Amounts up to the greater of $660m and 150% of consolidated EBITDA may be incurred with an earlier maturity than the initial term loans. There are no express "blocker" provisions which prohibit the transfer of specified assets to unrestricted subsidiaries; such transfers are permitted subject to carve-out capacity and other conditions. Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees, with no explicit protective provisions limiting such guarantee releases. There are no express protective provisions prohibiting an up-tiering transaction. The above are proposed terms and the final terms of the credit agreement may be materially different.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects our expectation for continued growth in revenue and EBITDA that will drive leverage down from current elevated levels. The stable outlook also considers the company's good liquidity.Ratings could be downgraded if there is a decline in EBITDA performance from factors such as volume pressures or higher operating costs, liquidity deteriorates, or if debt-to-EBITDA leverage increases to 8x (inclusive of cash distributions received from JV).Ratings could be upgraded if the company generates consistent and comfortably positive free cash flow, revenue is growing, and debt-to-EBITDA is sustained below 6.0x (inclusive of cash distributions received from JV).The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Scientific Games Holdings LP is a provider of instant and draw lottery games, sports betting, lottery systems and retail technology and iLottery to government and non-government lottery entities in over 50 countries. The company is owned by Brookfield Business Partners LP, following the acquisition of the company from Scientific Games Corporation. Annual revenue is approximately $1 billion.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Adam McLaren Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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