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TEXT-S&P raises Global Cash Access rating to 'BB'
2012年2月29日 / 晚上10点49分 / 6 年前

TEXT-S&P raises Global Cash Access rating to 'BB'

Overview	
     -- We are raising our issue-level rating and revising our recovery rating 	
on Global Cash Access' (GCA) first-lien senior secured debt, given
material debt repayment in the past year and our expectation for lower debt
outstanding in our projected, hypothetical default year. 	
     -- In addition, we are affirming our 'BB-' corporate credit rating on the 	
company.	
     -- The stable outlook reflects GCA's solid financial metrics, clear 	
market leadership position, high contract renewal rate, and a stabilizing 	
operating environment.	
	
Rating Action	
On Feb. 29, 2011, Standard & Poor's Rating Services raised its issue-level 	
rating on Global Cash Access Inc.'s (GCA) $245 million senior secured 	
first-lien credit facility to 'BB' (one notch higher than the corporate credit 	
rating) from 'BB-'. The facility consists of a $35 million revolving credit 	
facility and a $210 million term loan. 	
	
We also revised our recovery ratings on this debt to '2' from '3'. The '2' 	
recovery rating indicates our expectation for substantial (70%-90%) recovery 	
in the event of a payment default.	
	
At the same time, we affirmed our 'BB-' corporate credit rating on the 	
company. The outlook is stable.	
	
Rationale	
The ratings on GCA reflect its high customer concentration, niche product 	
focus, and lack of international diversification, along with recent pricing 	
pressures and a still-sluggish gaming environment. However, GCA's financial 	
profile provides a cushion within its existing rating to absorb the persistent 	
weak operational developments. Furthermore, the company has a clear market 	
leadership position in its niche, a solid base of recurring revenues stemming 	
from long-term contracts, and a high contract renewal rate.	
	
GCA is the gaming industry's leading provider of transaction-processing 	
services and technology products that dispense cash to customers on the casino 	
floor. The company's ATMs and cash access services distribute cash and cash 	
advances through ATM, debit, and credit card transactions; and its software 	
platforms, gaming patron database, and workstations for casino cashiers help 	
casinos manage credit risk and marketing efforts. The company's ATM and cash 	
access services account for about 90% of revenues. 	
	
We view GCA's business risk profile as "weak" (as defined in our criteria). 	
Revenue for the last 12 months ended Sept. 30, 2011 was $544.1 million, down 	
approximately 2.7% sequentially and 11.7% year over year. The entire revenue 	
decline is attributable to the loss of the Caesar's contract, which was 	
terminated in November 2010 and represented about 14% of revenues. Pro forma 	
for the loss of Caesar's, revenue was up about 4.4% and 0.4% year over year 	
for the three and nine months ended Sept. 30, 2011, respectively. Furthermore, 	
in November 2011, the company acquired competitor MCA Processing LLC, which 	
brought with it half of the former Caesar's contract. Growth in the quarter 	
ended Sept. 30, 2011 represented the first period of growth experienced since 	
2008 and high-margin credit card cash access transactions still haven't grown 	
in about four years. Nonetheless, we believe that the company's modestly 	
positive organic growth will continue in 2012 due to an expected improvement 	
in the U.S. gaming market outlook.  	
	
The company has been successful in renewing every top 20 contract since the 	
initial Caesar's loss (~90% historical renewal rate), and has won a number of 	
contracts for new casino openings (~75% historical new win rate). Typical 	
contract length is between three and five years, and despite the fact that the 	
company still has a high degree of customer concentration (the top five 	
contracts account for ~30% of revenue), over half of the top 20 have 	
agreements beyond 2013. This stable base of contracts should leave the company 	
poised for secular gaming upswings and any return in growth of consumer 	
credit. Therefore, for 2012, we expect low-single-digit organic growth and 	
high-single-digit growth inclusive of the MCA acquisition. We believe that 	
gaming activity shifting to international markets (under 5% of the company's 	
revenues are from overseas), and legalization and development of online gaming 	
markets are both longer term opportunities and risks to growth.    	
	
Along with the weak top-line performance the past couple of years, GCA has 	
seen EBITDA margin decline from the 18%-20% range pre-2008 recession to around 	
11%-12% currently. Even though the company's cost of revenues are highly 	
correlated with revenue levels, a shift in product mix to more ATM 	
transactions instead of higher margin credit card cash advances and 	
competitive pricing pressure on new and renewed contracts impaired 	
profitability. The company has done a good job of controlling operating costs, 	
and we believe that the EBITDA margin has bottomed. Furthermore, the company 	
should see material EBITDA margin improvement with the October 2011 enactment 	
of the Durbin Amendment, which caps the amount of interchange expense on 	
signature and PIN debit transactions, and it is uncertain what portion of the 	
cost benefit will be returned to customers over the next several years.	
	
GCA has a "significant" financial risk profile (as defined in our criteria). 	
Standard & Poor's adjusted debt to EBITDA was 3.2x for the last 12 months 	
ended Sept. 30, 2011. Free operating cash flow (FOCF) to debt is strong for 	
the rating, at around 26%, but on a relatively modest cash flow base. The 	
company has historically used free cash flow to repay debt, and has repaid 	
about $30 million of its term loan through September 2011. We expect that the 	
company will continue to make additional debt repayments over the near term. 	
We believe that leverage could decline to below 3x over the next few quarters. 	
However, in the intermediate term, we believe that GCA could return to making 	
share repurchases or acquisitions.	
	
Liquidity	
We believe that GCA has "adequate" liquidity (as defined in our criteria). The 	
company's cash sources should exceed cash uses by a wide margin over the next 	
two years. However, absolute cash flow levels are somewhat modest, and we 	
believe that the company's high degree of customer concentration leaves it 	
potentially less able to withstand a low-probability, high-impact event. 	
	
The company's cash sources include about $60 million of cash on hand at Sept. 	
30, 2011, good free cash flow generation, and full availability under its $35 	
million revolver. Normal cash uses include about $8 million of annual expected 	
capital expenditures, and variable working capital needs. We expect GCA to 	
continue to prudently manage the risks and costs of its cash funding and 	
settlement arrangements with third-party financial-, networking-, and 	
processing-services providers. 	
	
The company is required to adhere to two financial maintenance covenants: a 	
total leverage ratio and an interest expense coverage ratio. The covenant 	
headroom under the leverage ratio has been over 35% since the refinancing, and 	
we believe that the company will maintain adequate headroom even as the ratio 	
steps down from 4.25x for the Dec. 31, 2011 test period to 3.25x for the Jan. 	
31, 2012 test period, where it will remain until 2015. 	
	
Recovery analysis	
For the complete recovery analysis see the recovery report on GCA, to be 	
published in due course following the release of this article on 	
RatingsDirect. 	
	
Outlook	
The outlook is stable, reflecting GCA's solid financial metrics, clear market 	
leadership position, successful resigning of the majority of contracts up for 	
renewal, and a slowly improving operating environment. We could upgrade the 	
company to 'BB' if it can reduce and sustain leverage in the low-2x area by 	
continuing to repay debt or through more favorable growth dynamics, providing 	
greater clarity on its financial policy, and continuing to successfully renew 	
and win contracts without significant pricing pressure. A downgrade is 	
unlikely over the near term, absent a large, unforeseen debt-financed 	
acquisition or share repurchase, which causes leverage to rise and stay above 	
4x.	
	
Related Criteria And Research	
     -- U.S. Technology Companies' Liquidity Is Higher, For Now, Jan. 18, 2012	
     -- Industry Economic Outlook: Slow Global IT Spending Growth Is Likely To 	
Continue Into 2012, Jan. 12, 2012	
     -- Issuer Ranking: Global Technology Ratings, Strongest To Weakest, Dec. 	
22, 2011	
     -- Reshuffling The Debt: Global High-Tech M&A Activity Accelerates, Oct. 	
13, 2011	
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011	
     -- Key Credit Factors: Methodology And Assumptions On Risks In The Global 	
High Technology Industry, Oct. 15, 2009	
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, 	
May 27, 2009	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	
	
Ratings List	
	
Ratings Affirmed	
	
Global Cash Access Inc.	
 Corporate Credit Rating                BB-/Stable/--      	
	
Upgraded; Recovery Rating Revised	
                                        To                 From	
Global Cash Access Inc.	
 Senior Secured                         BB                 BB-	
   Recovery Rating                      2                  3	
	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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