Shares of gaming technology provider Everi Holdings (NYSE:EVRI) slumped Monday a few days after Fitch Ratings pared its credit mark on the company further into junk territory.
Las Vegas-based Everi rallied more than 53 percent last week. But the stock is following the broader market lower Monday, trading down by 4.43 percent in midday trading. Like gaming companies of all stripes, Everi is experiencing significant equity price erosion this year at the hands of the coronavirus outbreak, with its stock shedding almost 69 percent of its value on a year-to-date basis.
Citing “reduced recovery prospects” and concerns about rising leverage, Fitch dropped Everi’s credit rating to ‘B’ from ‘B+’ with a “negative” outlook.
Fitch projects Everi’s leverage will spike in 2020 and could return to within Everi’s 6.0x debt/EBITDA sensitivity for ‘B’ IDR in 2021 when conditions normalize,” said the research firm. “Everi has no maturities in 2020 and Fitch estimates that the company will burn $39 million in cash during 2Q20, with FCF turning breakeven-to-slightly positive in 3Q20 and 4Q20. Currently, Everi has a 4.5x net secured leverage maintenance covenant that Fitch expects Everi to seek an amendment for.”
Heading into 2020, Wall Street was mostly bullish on Everi after the stock more than doubled last year, with analysts displaying enthusiasm for new Fintech and payment processing offerings. Then the coronavirus hit, prompting temporary closures of all domestic commercial and tribal casinos, forcing the company into a near zero-revenue environment along with its operator clientele.
Negative outlooks from ratings agencies implies a company’s credit grade could be vulnerable to further downgrades. In the case of Everi, Fitch says the glum view stems from the company’s exposure to an industry that essentially ground to a halt in the US because of the COVID-19 pandemic.
“Everi’s Negative Outlook reflects the company’s exposure to the adverse impact to the gaming industry from the coronavirus pandemic,” said the credit rater. “Specifically, about two-thirds of its revenues are directly tied to activities at casinos, which are widely closed with uncertain timeline for openings or normalization of volumes. Other segments will be impacted by gaming operators’ likely tendency to conserve capital in the near term.”
Last month, Everi joined an array of gaming companies in yanking 2020 financial guidance, citing the coronavirus. CEO Michael Rumbolz is declining cash salary this year, and other high-level executives are taking big pay cuts to help the company conserve capital.
Some Hope for a Stable Outlook
The book isn’t closed on Everi earning an upgrade to a “stable,” but the company has some work to do.
“Fitch could revise the Rating Outlook to Stable when the extent and the duration of the coronavirus impact on the gaming industry becomes more clear and Fitch gains more confidence in Everi’s ability to deleverage quickly to within 6.0x debt/EBITDA,” notes the research firm. “Conversely, a more severe impact than what is currently forecast by Fitch could result in a downgrade. Fitch will also consider Everi’s liquidity and covenant considerations when considering the Rating Outlook and possible further rating actions.”
At this writing, Everi stock resides at $4, down 73.14 percent from its 52-week high.