Flutter Entertainment Earns Junk Mark From Moody’s in First Post-Merger Rating

Moody’s Investors Service assigned a Ba1 credit rating with a “stable” outlook to Flutter Entertainment, the research firm’s first grade on the company following its $12.2 billion merger with The Stars Group (TSG).

That deal, which was wrapped up earlier this week, creates the world’s largest online gaming company – one that’s expected to generate revenue north of $4 billion, with customers in more than 100 countries. Debt carrying one of the three Ba ratings from Moody’s “are judged to have speculative elements and are subjective to substantial credit risk.” Those grades are non-investment grade, or junk.

Flutter’s Ba1 corporate family rating (CFR) is supported by: (i) its leading position in the global online gaming market with podium positions in the largest online regulated markets; (ii) its focus on the online segment, which is the main growing segment in the gaming industry and (iii) its diversified product offering within the gaming market, supported by leading brands,” said Moody’s in a note.

Flutter investors own 54.64 percent of the new entity, which started trading in Dublin and London on Tuesday, while Stars shareholders control the remainder.

Creating a Behemoth

Flutter controls brands such as PaddyPower, Betfair, Adjarbet, FanDuel, TGV, and Sportsbet, making it a dominant player in the competitive European and US sports wagering markets. With TSG in the fold, the company adds PokerStars, Sky Betting and Gaming (SBG), and FoxBet, a combination that gives the firm dominant positioning in the UK and increased exposure to the fast-growing US market.

The research firm is also bullish on Flutter’s strong cash flow generation and the company’s commitment to deleveraging its balance sheet – two traits investors are clamoring for at a time when sportsbook operators are under siege because of cancellations and postponements of athletic competitions at the hands of the coronavirus.

Stable View

The “stable” outlook assigned to Flutter assumes the company will at least grow at par with the markets it operates in, and that it proves successful in paring debt.

“The stable outlook reflects our view that the company will continue to grow at least in line with the online market, and any regulatory pressure will be largely offset by the synergies achieved,” said the credit agency. “We expect that Flutter’s leverage, as measured by Moody’s adjusted debt/earnings before interest, taxes, depreciation and amortization (EBITDA) on a combined basis, will improve to below 3.5x and decrease towards 3.0x in the next 12-18 months, depending on the company’s commitment to repay debt with internally-generated cash flows.”

The ratings house said the outlook could be revised lower if Flutter’s leverage increases, or if the company pursues another big acquisition paid for in debt.

At the end of last year, the company had almost $531 million in cash on hand.