Alex Bumazhny of Fitch has issued a caution over the debt being taken on by supplier companies during the current acquisition binge.
Increased debt as the industry remains challenged raises the near-to-medium-term credit risk and investors should pay special attention to suppliers’ free cash flow given that much of their debt is variable and interest rates are likely to rise over the next three years, he said.
Four recent acquisitions - Global Cash Access of Multimedia Games, Aristocrat of Video Game Technologies, GTECH of IGT and Scientific Games of Bally - will place $22bn of debt on about $3.7bn of EBITDA, excluding estimated synergies, Bumazhny said.
That is six times debt to EBITDA compared to two times for those companies two years ago, he said. Higher debt ratios and rising interest rates could make refinancing on acceptable terms a challenge when debt starts coming due in the early 2020s, Bumazhny said.
