OREANDA-NEWS. S&P Global Ratings today lowered its corporate credit rating on Las Vegas-based Scientific Games Corp. to 'B' from 'B+'. The outlook is stable.

At the same time, we lowered our issue-level rating on the company's senior secured debt, consisting of a $592.6 million revolver, a $2.3 billion term loan B-1, a $2.0 billion term loan B-2, and $950 million in senior secured notes, to 'B+' from 'BB-'. The recovery rating remains '2', reflecting our expectation of substantial (70% to 90%; lower half of the range) recovery for lenders in the event of a payment default. We also lowered our issue-level rating on the company's $2.2 billion senior unsecured notes to 'B-' from 'B'. The recovery rating on the senior unsecured notes remains '5', reflecting our expectation of modest (10% to 30%; lower half of the range) recovery for lenders in the event of a payment default. We also lowered our issue-level rating on the company's subordinated notes to 'CCC+' from 'B-'. The recovery rating remains '6', reflecting our expectation of negligible (0% to 10%) recovery for lenders in the event of a payment default.

"The downgrade of Scientific Games reflects our forecast for lower EBITDA growth and weaker credit measures than we previously expected," said S&P Global Ratings credit analyst Ariel Silverberg. "We now expect adjusted debt to EBITDA to be in the mid-7x area at the end of 2016, which is above the 7x leverage threshold we had set for a downgrade, and which is about a half a turn higher than under our prior forecast," she added.

The stable outlook reflects our expectation that Scientific Games will achieve modest EBITDA growth and debt reduction over the next several quarters, but that adjusted debt to EBITDA will remain high, at above 7x, and EBITDA coverage of interest will remain in the high-1x area. We believe the company will continue to use free cash flow to reduce debt balances over time.

We could lower the ratings if adjusted EBITDA coverage of interest falls to the mid-1x area or below, or if the company's liquidity position were to be impaired. This would likely result if EBITDA declined about 15% or more from our forecasted level, or if the company did not use free cash flow to reduce debt balances. We would also consider lower ratings if we believed the company's good market position in the lottery, gaming, or systems segments had eroded.

We would consider higher ratings if adjusted debt to EBITDA were sustained below 7x and EBITDA coverage of interest sustained above 2x. This would likely result from an outperformance of EBITDA relative to our base case, or a significant reduction in debt.