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Investing.com -- Fitch Ratings has lowered the Long-Term Issuer Default Rating (IDR) of Inspired Entertainment, Inc. to ’B-’ from ’B’ on Monday, March 17, 2025. The senior secured instrument rating of Inspired Entertainment (Financing) PLC has also been reduced to ’B+’ from ’BB-’. The Recovery Rating remains at ’RR2’. All ratings have been placed on Rating Watch Negative (RWN).
The downgrade follows a decline in Inspired’s financial profile in 2024 due to its inability to generate positive free cash flow (FCF). This situation has reportedly led to a decrease in liquidity ahead of the company’s 2026 notes maturity.
The RWN is due to the absence of a comprehensive refinancing plan less than 18 months before its upcoming notes maturity, coupled with a largely drawn revolving credit facility (RCF) due in 2025. Fitch plans to resolve the Rating Watch once a new long-term capital structure is established. If refinancing is not addressed by June 2025, a further downgrade is expected.
Inspired’s 2026 senior secured notes will become current in June 2025, and its RCF matures in November 2025. The risk of refinancing currently influences its credit profile. Fitch estimates a thin cash balance at the end of 2024 of around $25 million, which suggests that the refinancing amount will likely involve extending the maturity of the currently largely drawn RCF, slightly re-leveraging Inspired, although pro-forma leverage will still be moderate for a low ’b’ category credit.
Inspired’s revenues in 2024 are estimated to have declined by 6%, with an EBITDAR margin 300 basis points below 2022 levels. Weak performance in its virtual segment was partially offset by strong growth in the interactive segment, leading to broadly flat EBITDAR in absolute terms. These two high-margin segments have generated over 50% of Inspired’s EBITDA since 2022, offsetting the stagnating gaming and leisure segment performance, consistent with the UK retail gaming market.
Inspired’s B2B business model allows it to generate higher profitability than most B2B operators in the gaming industry. However, high capital intensity (12%-14% of revenues in Fitch forecasts), coupled with volatile working capital, has kept FCF negative since 2020. In 2024, negative FCF was largely driven by remediation of restatement activity that Fitch does not consider to be recurring. Fitch forecasts a flat FCF margin in 2025, as it expects Inspired to contain working capital-related outflows.
Inspired’s financial policy remains conservative, and the lack of EBITDA growth was balanced by broadly stable debt aside from the drawings under its revolving credit facility (RCF). Fitch estimates its EBITDAR leverage at 3.6x at the end of 2024 and expects a slight increase to 3.7x in 2025, followed by gradual organic deleveraging towards 3.3x in 2027. This is low for the ’B-’ IDR, resulting in sizeable leverage rating headroom.
Inspired’s geographic revenue concentration remains high within the gaming and leisure segments, which continued to generate around 70% of revenues in 2024. Inspired has increased its geographic diversification through expansion of its virtual and interactive businesses in the US market, as well as the gaming segment, with sales of video lottery terminal machines in the US.
About 50% of Inspired’s revenue remains gaming-related, despite some diversification into non-regulated (leisure) and currently less regulated (virtual sports) segments. Although not directly exposed to many regulatory restrictions, Inspired can be affected through more onerous contract terms with its customers: business to consumer (B2C) gaming companies.
Fitch estimates liquidity to have deteriorated at the end of 2024, with a cash balance of around $25 million (after Fitch’s $3 million cash restriction for operational requirements), about $20 million lower than its previous forecast. The recent lack of consistent FCF generation puts additional pressure on liquidity, leading Fitch to assume imminent refinancing of the RCF, together with the upcoming 2026 notes.
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