Markets & Finance

Alliance Gaming Raised as Winning Streak Continues


On Apr. 16, Standard & Poor's raised its corporate credit and senior secured bank loan ratings for Alliance Gaming Corp. to single-'B'-plus from single-'B'. Concurrently the company's subordinated debt rating was raised to single-'B'-minus from triple-'C'-plus. The ratings have been removed from CreditWatch where they were placed on April 4, 2001.

The outlook is stable.

Approximately $330 million in debt is affected.

The upgrade reflects Las Vegas-based Alliance Gaming's meaningful operating turnaround, and Standard & Poor's expectation that management has positioned the company well for steady and/or modestly improving performance over the mid-term.

The ratings reflect Alliance's improved operating performance and its relatively diverse cash flow base. This is offset by the challenges associated with increasing its market share in the gaming equipment segment and the volatility experienced within certain divisions during the past couple of fiscal years.

Management has taken various actions over the last year to direct a turnaround. These actions included substantial cost reductions that have lowered the breakeven unit sales level at Bally Gaming & Systems and at Bally Wulff. In addition, management has enhanced the new product pipeline at Bally Gaming & Systems for stand-alone and wide-area progressive (WAP) machines. This effort is expected to stabilize the three-year decline in unit sales of stand alone machines and continue to grow the installed base of WAP machines. Three new WAP products, Blondie, Millionaire 7, and Popeye are expected to have a positive impact to the base of recurring revenue games during the next couple of years. Also, the recent move a 17"-19" upright cabinet for stand-alone machines and the anticipated transition to the EVO technology platform are viewed positively.

Standard & Poor's expects that Alliance's two casinos will continue to be stable cash flow generators. Alliance's larger Vicksburg property generates a high EBITDA margin, and Standard & Poor's does not expect the dynamics of this marketplace to change much over the mid-term.

Standard & Poor's views Bally Wulff's performance as less steady. Even so, material cost reductions and the success of the Sunfire product (introduced in September 2000) have benefited performance during fiscal 2001.

For the 12 months ended March 31, 2001, Alliance reported EBITDA of $80.6 million compared to $51.7 million for the fiscal year ended June 30, 2000. EBITDA coverage of interest expense improved to 2.3x during the March 12-month period, compared to 1.5x for during fiscal 2000. In addition, the company's ratio of total debt to EBITDA strengthened to 4.1x during the 12 months ended in March, compared to 6.7x during fiscal 2000. These ratios are expected to remain within current ranges following the previously announced sale of the Nevada route operation (United Coin Machine Co.). The company reported cash and equivalents of $46.5 million at March 31, 2001, up from $32 million at June 30, 2000.

Standard & Poor's expects that Alliance will continue its recovery following a challenging couple of years. Management's efforts are expected to result in stable or modestly growing cash flow supportive of the new ratings over the mid-term. From Standard & Poor's Credit Wire


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