Lottery tech provider and gaming machine supplier Scientific Games Corp. has named a new man to replace gaming industry veteran Gavin Isaacs as its CEO, a move that sent the company’s shares plummeting.
Kevin Sheehan, former chief executive of Norwegian Cruise Line Holdings Ltd., was tapped to take over the post of CEO and president at Scientific Games, while Isaacs will become vice chairman of the board of directors.
Sheehan, who was Norwegian’s CEO for seven years, was credited for guiding the cruise line operator through its initial public offering in 2013. However, Sheehan—a gambling industry newcomer—has some big shoes to fill.
“Given Mr. Isaac’s ‘cult’ status amongst gaming investors, we sense there are some owners who stayed loyal to the stock because of his direct oversight, who may now be more compelled to exit the name,” Stifel Nicolaus & Co. analyst Steven Wieczynski said in a note, according to Bloomberg.
Last Friday, shares of the gambling tech provider already plunged 16% to $8.53, the biggest intraday drop recorded in New York since November, the news outlet reported.
The news of Isaac stepping down may have caught the market off guard, but analysts at Union Gaming believe that Sheehan’s appointment marks a shift in Scientific Games’ focus from integration to deleveraging.
“We believe the arrival of Mr. Sheehan is a positive given his proven experience and success with navigating challenging operating conditions and leveraged balance sheets. What is more is that Mr. Isaacs in his new role as vice chairman will remain full time through the end of the year to oversee the transition,” Union Gaming analyst John DeCree said in a note.
Scientific Games made several high-profile acquisitions in the past several years, including deals for Bally Technologies and WMS Industries, which boosted the company’s debt to $8.4 billion.
However, DeCree said Scientific Games has been making great efforts starting in the second quarter of 2016 to reduce debt by repurchasing $66 million of subordinated bonds at a discount. So far, the company had only generated $15 million of free cash flow (FCF).
“What is encouraging still is that the company remains FCF positive and the debt load remains manageable, for now. However, the path toward deleveraging remains arduous and we look forward in the coming quarters to hear how Mr. Sheehan will address the balance sheet,” DeCree said.
