Research: Rating Action: Moody’s downgrades Lucky Bucks CFR to Caa1, indicted for further downgrade

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New York, October 13, 2022 — Moody’s Investors Service (“Moody’s”) today downgraded the corporate family rating of Lucky Bucks, LLC (“Lucky Bucks”) from B2 to Caa1. The company’s probability of default rating was downgraded to Caa1-PD from B2-PD and its revolver and term loan ratings were downgraded to Caa1 from B2. At the same time, all Lucky Bucks ratings were reviewed for further downgrade.

The following ratings/ratings are affected by today’s action:

Degraded notes:

..Issuer: Lucky Bucks, LLC

…. Corporate Family Rating, downgraded from B2 to Caa1; Placed under review for further downgrading

…. Default scoring probability, downgraded to Caa1-PD from B2-PD; Placed under review for further downgrading

….Senior Secured Bank Credit Facility, Downgraded from B2 (LGD4) to Caa1 (LGD4); Placed under review for further downgrading

Outlook Actions:

..Issuer: Lucky Bucks, LLC

….Outlook, changed to note under review of Stable

RATINGS RATIONALE

The downgrade takes into account several factors, including the unfavorable impact on EBITDA from increased regulatory enforcement in the Georgian coin-operated amusement machine market, as well as increased concern from Moody’s regarding the inflation and recession, particularly the potential impact on consumer discretionary spending. Combined, these factors will challenge the company to achieve and sustain Moody’s debt-to-EBITDA downgrade trigger of 5.0x over the next 12-18 months. The debt to EBITDA ratio calculated by Moody’s for the last 12 months ended June 30, 2022 was 7.8x. Pro forma Debt to Adjusted EBITDA for covenant calculation purposes was lower, though still high, at 6.52x for the same period.

The Georgia Lottery Commission recently tightened enforcement of its 50% rule, among other rules. The 50% rule states that no location owner or operator may derive more than 50% of their locations gross retail revenue from Class B machines. a number of Lucky Bucks machines. The decline in the number of machines will continue to have a negative impact on EBITDA performance compared to Moody’s initial expectations.

Lucky Bucks debt/pro forma adjusted EBITDA for the last 12 months ended June 30, 2022 was 6.52 times and is unlikely to improve materially in the foreseeable future. This could lead to a breach of engagement. Lucky Buck’s is required to respect a pro forma debt/adjusted EBITDA leverage covenant of 7.75x. The financial covenant is a springing covenant when the revolver is drawn to 35%.

EBITDA stress could also result in overall liquidity stress, especially given the company’s relatively large term debt amortization obligation at $27.75 million per year, and the fact that the Company’s credit facilities are currently unsecured, exposing the Company to interest rate risk that accompanies inflation. Lucky Bucks has repurchase rights and plans to slow acquisition spending to preserve liquidity.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

While Moody’s expects Lucky Bucks to work with its lenders to address the risks cited above, the downgrade review recognizes the possibility that an agreement between the company and its lenders (modification of debt or amortization, restructuring, modification of debt covenants, etc.) result in what Moody’s considers to be a distressed exchange.

Ratings could also be downgraded if, for any reason, including further enforcement by the Georgia Lottery Commission that results in the retirement of additional machines, EBITDA or liquidity deteriorates in the short term to the point that a default is probable. Ratings could be affirmed or upgraded if Moody’s believes it is very likely that Lucky Bucks will meet its commitments, any agreement with its lenders will not result in a distressed exchange, and EBITDA trends and liquidity are sufficiently strong to sustain the business over the long term. – term without risk of breach of commitment, default of payment or exchange in difficulty in the longer term.

The main methodology used in these ratings is Gaming published in June 2021 and available at https://ratings.moodys.com/api/rmc-documents/72953. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Lucky Bucks, LLC is a Coin Operated Amusement Machine (COAM) operator in the State of Georgia. COAMs are placed in high-traffic locations, such as convenience stores and gas stations, and provide customers with a slot machine-like gaming experience. Reported net revenue for the 12 months ended June 30, 2022 was $92 million.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Keith Foley
Senior Vice President
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Philippe Kibel
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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