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China-owned gaming company bets on US investors for US$2.5bn loan

By Aaron Weinman

By Aaron Weinman

NEW YORK, Dec 4 (LPC) - Mobile gaming company Playtika, known for its casino-themed games, is placing a high-stakes bet on a selective US investor base that has hand-picked recent leveraged transactions as their worries over a potential economic recession mount.

Playtika, which operates apps including poker and solitaire, launched a US$2.5bn term loan to refinance an existing bridge loan on November 13, according to four people with knowledge of the transaction. After a lukewarm response from some buyers, on November 26, the company hiked the interest rate on the five-year loan to 600bp, from the original 400bp over Libor.

One concern at the heart of the matter is the company’s exposure to China and the country’s tit-for-tat trade war with the US. This week, the tone of the US-China discussions shifted as President Donald Trump suggested to reporters that a trade deal with China might take longer than expected.

“There are all sorts of obvious noises around the trade war right now,” said one investor who passed on the transaction. “I can’t wrap my head around that, so it’s not a deal for everyone.”

In 2016, a consortium of Chinese investors led by Giant Network Group bought Israel-based Playtika from Caesars Interactive Entertainment for US$4.4bn. The company’s bridge loan also came from a Chinese bank to finance a dividend to shareholders, sources said.

Just two weeks ago, Beijing and Washington seemed to be on track for an agreement that would end the tariff dispute that has rocked markets since President Trump implemented trade barriers on China in April 2018. On Tuesday, with the Playtika deal on the cusp of finalizing, President Trump further tested investors’ patience after he told reporters in London that he was willing to wait until after the 2020 election in the US to reach a trade deal.

Credit Suisse is leading the transaction for Playtika, which cleared syndication on Tuesday.

PLACE YOUR BETS

As a standalone borrower, Playtika’s loan is a high-reward bet for an investor base hungry for yield in a low interest rate environment. At 600bp over Libor, a discount of 98 cents on the dollar (from the original 99 cents) and 5% annual amortization, the US$2.5bn loan, rated Ba3/B+, offers investors more than most of its peers.

On Monday, Cox Media Group launched a US$1.875bn Ba3-rated term loan between 400bp-425bp over Libor that backs the company’s buyout by Apollo Global Management. Clinical research company WIRB-Copernicus Group, rated B, launched a US$920m first-lien loan between 425bp-450bp over Libor that will support its acquisition by Leonard Green & Partners.

Playtika’s adjusted leverage was about 4.5 times for the last 12 months that ended in June, and this forecast is to decrease to approximately 4.0 times over the next 12-18 months, according to a November 15 report from Moody’s Investors Service. Most single-B rated debt comes stacked with leverage in excess of 6.0 times.

“The ratings are good, given the pricing, but this plays into the level of comfort investors may not have with Playtika’s business model,” said a second source. "I figured it would price wider than other deals with similar ratings."

As a mobile gaming company, Playtika competes with larger, console-based competitors that have survived an economic downturn.

Founded in 2011 on the back of growth in smartphone usage, Playtika is dwarfed by the likes of Activision Blizzard or Electronic Arts, which owns FIFA football video games. These companies, with more diversified revenue streams, are pivoting to mobile gaming, a move that could usurp Playtika’s share of the market.

While Playtika has grown through acquisitions, particularly in the popular casino-themed gaming apps, its business model relies on keeping smartphone users engaged with its products enough to hope that they become paying customers.

“Mobile gaming is growing, but these businesses are tough. Lots of competition and it’s a bit faddish,” a third source that passed on the deal added.

Playtika has roughly 11 million daily average users. Approximately 236,000 are daily paying users that generate most of the company’s revenue, according to Moody’s. (Reporting by Aaron Weinman. Editing by Michelle Sierra) )