Flutter Selling $1.05B in Debt with BBB- Rating
FanDuel's parent company, Flutter Entertainment (NYSE: FLUT), announced on Tuesday that it is offering $1.05 in senior secured notes that mature in 2029.
According to the Dublin-based gaming company, the proceeds of the debt offering, which comprises bonds denominated in dollars and euros, would be used to pay back borrowings under a credit facility obtained in July 2018 as well as "to repay borrowings under the existing multi-currency revolving credit facility."
In an effort to increase exposure to a wider range of investors and expand the company's access to financial markets, Flutter listed its shares on the New York Stock Exchange (NYSE) in January. This announcement is the company's first debt offering since then.
At its annual meeting next month, Flutter intends to seek investors to move the company's primary listing from the London Stock Exchange (LSE) to the New York Stock Exchange (NYSE).
Flutter Debt Outlook Upped to Positive
S&P Global Ratings confirmed the gaming company's credit grade at "BB+" and assigned a rating of "BBB-" to the latest Flutter debt issuance in a report released on Tuesday. Additionally, the research organization changed its assessment of the operator's credit profile from "stable" to "positive."
"The positive outlook indicates that we could raise the rating if Flutter continues to demonstrate sound operating performance spurred by the significant growth expectation in its U.S. business, with credit metrics strengthening toward 3.0x S&P Global Ratings-adjusted leverage and robust free operating cash flow (FOCF) generation, while maintaining a consistent financial policy supportive of the stronger performance and credit ratios,” noted S&P.
FanDuel, the biggest online sportsbook operator in the United States, is 95% owned by Flutter. FanDuel's relevance in the larger Flutter investing thesis is highlighted by the fact that its US exposure accounts for a growing portion of its total profitability and is its fastest-growing section.
“Flutter estimates that the U.S. addressable sports betting and iGaming market will increase to more than $40 billion by 2030 from $9 billion in 2022. Flutter has a leading market position in the U.S. with 53.4% of the online sport betting market share (on a net revenue basis) and 26% of the iGaming market as of the fourth quarter of 2023, which translates into potentially substantial additional revenue and earnings in the short-to-medium term,” added S&P.
With robust free cash generation, Flutter can service debt
If Flutter maintains its strong FOCF creation in the US while maintaining leverage between 3x and 3.5x, it may be able to raise its poor credit rating. One measure of a company's quality that shows how well it can handle its debt is free cash flow.
According to S&P, Flutter is on a sound FOCF trajectory, which may eventually result in better credit metrics.
“We expect Flutter’s projected profit growth will spur material FOCF generation in the medium term and the group will generate close to $600 million-$700 million in 2024 and about $1.0 billion-$1.2 billion in 2025,” concluded the research firm.
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