Intralot is implementing one of the biggest corporate debt restructuring deals seen in Greek history but getting creditors to loosen the 750-million-euro debt loop gripping the company comes at a high price.
According to the initial agreement announced yesterday, the Intralot group will become a partner with the bondholders in its US subsidiary, which already brings in almost half of groups revenues from games and has strong prospects for future growth.
Undoubtedly, the offer of the Shakespearean "pound of flesh" to group creditors was a painful choice for the company of Socrates Kokkalis, but it was also the only solution to avoid a credit default in September, due to an inability to repay a 250-million-euro bond. In the markets, the agreement in principle with bondholders was immediately welcomed, with Intralot shares closing up 20%, while the price of the 2021 bond jumped from 53.5% to 71,655% and the 2024 bond strengthened from 42,09 % to 43,05%.
Yesterday's agreement is the first, but extremely important, step in moving Intralot's debt restructuring forward. The agreement commits some 75% of bond holders possessing debt that expires this year and needs to be accepted at least 90% of them in order for the decision to be binding.
In any case, the proposed debt restructuring agreement is based on the group's most valuable subsidiary, US-based Intralot Inc., which has the strongest growth prospects following the lifting of the federal ban on sports betting. Intralot Inc. has been converted into debt repayment currency for the group and will receive a significant haircut, depending on the final outcome of the restructuring process.
In particular, Intralot Inc .:
1. Is lending support to the 2021 bond, as the original, unsecured 250 million euro bond is expected to be swapped with a secured bond issue of Intalot Inc., with a nominal value of 205 million euros (an 18% haircut on its nominal value).
2. Will absorb the 500-million-euro bond, to be swapped with the shares of a newly established Dutch company, holding the shares of Intralot Inc. Through this exchange, the bondholders will get up to 49% of the Dutch company (TopCo), which will control Intralot Inc. This exchange will not be based on the face value of the bonds, but at a lower price, which will be based on the current price of the bonds in the market. Holders of bonds that will act as guarantors of the exchange for an amount of up to 68 million euros will also be paid in cash between 4% and 7.5% of the amount.
It is no coincidence that the US subsidiary of Intralot will be the foundation of the debt restructuring agreement. Especially after the loss of activities in Turkey and Bulgaria, but also in view of the strong prospects for the development of sports betting in the US, the subsidiary there has emerged as the most valuable asset of the group.
- In terms of game turnover managed by Intralot systems, revenues from the US the turnover reached 6.2 billion euros, from a total of 14.5 billion euros, or about 43%.
- In addition, while the group's revenue fell (52.1% to 266.1 million euros), with the decrease coming from almost all areas where Intralot operates, US revenue was up by 9.7 million euros, mainly because the new contract in Illinois started to pay, while the performance of lotteries was enhanced and the contribution of the new sports betting contracts in Montana and the District of Columbia increased.
Equally important was the contribution of US operations to operating results, at a time when the group suffered very large pre-tax losses of 56.8 million euros. The operating profit margin (EBITDA), however, increased from 14.2% to 17%, which Intralot attributed mainly to US operations.
According to analysts, Intralot could develop strongly in the US, but a major obstacle has been its weak financial position, which forced it to make very limited investments to protect liquidity. Starting with the completion of the debt restructuring agreement, Intralot could begin to increase its investment activity in the US market and claim new contracts. In this process, the winner will no longer be only the Intralot group but also the bondholders, as its new partners in the activities in the Land of Opportunity.