Shares of casino equipment and lottery services provider Scientific Games Corp jumped on Wednesday after the company announced that its wholly owned interactive social gaming subsidiaries have been designated as “unrestricted subsidiaries under its debt agreements.”
By designating the subsidiaries, which include Dragonplay Ltd. and Phantom EFX, LLC, Scientific Games will be able to gain profit for the interactive division without using the company’s earnings to pay off its debt agreements. The move was part of Scientific Games’ plan of “maximizing growth” for the company.
“The company will consider a range of options to solidify its leadership in this fast growing segment, including potential new joint ventures, acquisitions, IPO (initial public offering) and other growth options,” the company said in a statement.
Scientific Games’ social gaming business posted double-digit growth in each of the most recent three quarters, as well as a 68 percent increase in year-on-year revenue for the second quarter of 2016.
Wednesday’s announcement caused shares of the Nasdaq-listed company to jump as high as 22.2 percent. Union Gaming Securities LLC analyst John Decree said investors had positively received the news of the “unrestricted” designation.
“We expect an IPO or sale of a minority stake in the interactive business would be the most likely course of action, with proceeds likely going toward deleveraging—primarily near-term maturities,” Decree said in a note. “Overall, we believe the move highlights the value of the burgeoning interactive business and puts a higher floor on the equity valuation of the shares.”
Reducing debt and instill fiscal discipline has been Scientific Games’ key goals under Kevin Sheehan, who was tapped to take over the CEO position from Gavin Isaacs.
“Our industry leading investment in innovation is paying off. Following our company’s third consecutive quarter of revenue growth, we see this as a perfect time to accelerate momentum and explore additional opportunities to deliver greater value from this strong and rapidly growing segment of our business,” said Sheehan.