Sazka Group a.s. has announced price talk for its planned €500 million two-part secured bond offering, with the planned tap of its existing 3.875% secured bonds due 2027 guided at 98.76-99.25. Meanwhile, price talk for the new six-year euro secured floating-rate notes, or FRNs — which will be sized at a minimum of €300 million — is E+425-450 area with a 99.5 original issue discount (area is defined as a range of 12.5 basis points).
Global coordinators Deutsche Bank and Goldman Sachs (B&D) held a global investor call Jan. 28, while books are set to close at 2 p.m. London time today for pricing thereafter. BNP Paribas, Erste Group, HSBC, Société Générale and UniCredit are additional bookrunners.
Prior to this week's transaction, the group typically favoured fixed-rate bonds, but the move to include FRNs in its capital structure suggests the company is the latest in a string of borrowers using such notes to ensure strong demand from CLO buyers. Pricing, meanwhile, comes at a slight discount to whispers heard Feb. 1 at 99 area for the tap and E+425-450 for the FRNs.
This return to the bond market comes on the back of strong EBITDA growth for the pan-European lottery operator and follows a recent announcement by the group's parent company of listing on the NYSE via a special purpose acquisition company merger.
S&P Global Ratings, which last week upgraded Sazka's issuer and secured debt rating to BB- from B+, said it expected EBITDA to increase by roughly 50% and 75% for last year and this year, respectively. Growth in EBITDA follows the consolidation of the group's Austria business, CASAG, in which Sazka owns a 59.7% indirect stake, as well as a strong rebound from the COVID-19 pandemic in other regions, including the Czech Republic, Greece, Cyprus and Italy. Fitch, meanwhile, has reaffirmed its BB- issuer rating and assigned the same rating to the secured bonds.
Several market participants have noted Sazka's stock market listing should give the firm access to the deep pockets of U.S. capital markets; Ratings also notes the group's €500 million preference shares, stemming from an investment by Apollo in March 2021, will be restructured into €322 million of convertible notes as part of the transaction. Ratings says this will imply a 0.1x reduction in adjusted leverage.
The company's core business is lotteries, and Sazka enjoys a monopoly in Austria, the Czech Republic, Italy and Greece, with its nearest contracts set to expire between November 2025 and 2028, according to the bond documentation. While lotteries do not offer the same growth prospects as areas such as online betting, such revenues are noted for being less volatile, and a number of the firm's flagship contracts run through the life of the bond offering.
Sazka is also bidding to operate the U.K.'s National Lottery franchise from 2024, and it will compete for the contract alongside Sisal, the Italian lottery operator and high-yield bond name recently acquired by Flutter Entertainment. The group should be able to fund this via internally generated cash flow, Fitch notes.
Concerns have been raised, however, around the HoldCo structure of the debt. "We don't like HoldCo deals where you don't have operational controls over the operating company," notes one investor. "This is not uncommon in the high-yield market, but Sazka is the most elevated version of that."
The bulk of proceeds from the transaction will be used to refinance existing debt, including the company's €200 million of 4% notes at its Slovak subsidiary maturing this year, and to repay €100 million drawn from the group's RCF and a €55 million term loan A amortization. Additional proceeds will fund general corporate purposes and bolt-on acquisitions as well as fund cash on balance sheet.
Sazka's existing €300 million tranche of 3.875% notes due 2027 — which will be tapped as part of this week's transaction and were placed in January 2020 at a discount to par for a 4% yield — were trading at about 99.75 prior to the announcement of the new bonds, but they closed Jan. 31 at 99.16 for a 4.061% yield, according to S&P Global Market Intelligence data.
The new FRNs due 2028 will be callable at par after one year and will be issued via newly incorporated U.K. operating entity Allwyn Entertainment Financing (UK) PLC.