Flutter Selling $1.05B in Debt with BBB- Rating

Flutter Entertainment (NYSE: FLUT), the parent company of FanDuel, said today it is selling $1.05 in senior secured notes maturing in 2029.

The Flutter logo as seen in an investor deck. The company announced a $1.05 billion debt sale today. (Image: Flutter Entertainment)

The proceeds of the debt sale, which includes dollar- and euro-denominated bonds, will be used to repay borrowings under a credit facility attained in July 2018 and “to repay borrowings under the existing multi-currency revolving credit facility,” according to the Dublin-based gaming company.

The announcement marks Flutter’s debt sale since the company listed its shares on the New York Stock Exchange (NYSE) in January — a move aimed at bolstering exposure to a broader swath of investors and increasing the company’s ability to access capital markets.

Currently, Flutter’s primary listing is on the London Stock Exchange (LSE), but the company plans to ask investor at its annual meeting next month to shift the primary listing to the NYSE.

Flutter Debt Outlook Upped to Positive

In report out today, S&P Global Ratings applied a rating of “BBB-“ to the new Flutter debt sale while affirming the gaming company’s credit grade at “BB+.” The research firm also upgraded its outlook on the operator’s credit profile to “positive” from “stable.”

The positive outlook indicates that we could raise the rating if Flutter continues to demonstrate sound operating performance spurred by the significant growth expectation in its U.S. business, with credit metrics strengthening toward 3.0x S&P Global Ratings-adjusted leverage and robust free operating cash flow (FOCF) generation, while maintaining a consistent financial policy supportive of the stronger performance and credit ratios,” noted S&P.

Flutter owns 95% of FanDuel, which is the largest online sportsbook operator in the US. The company’s US exposure is increasingly prominent part of its overall profitability and represents its fastest-growing segment, underscoring the pertinence of FanDuel in the broader Flutter investment thesis.

“Flutter estimates that the U.S. addressable sports betting and iGaming market will increase to more than $40 billion by 2030 from $9 billion in 2022. Flutter has a leading market position in the U.S. with 53.4% of the online sport betting market share (on a net revenue basis) and 26% of the iGaming market as of the fourth quarter of 2023, which translates into potentially substantial additional revenue and earnings in the short-to-medium term,” added S&P.

Flutter Can Service Debt on Strong Free Cash Generation

It’s possible that Flutter can land an upgrade to its junk credit rating if it continues notching impressive FOCF generation in the US while keeping leverage in the 3x to 3.5x range. Free cash flow is a quality metric and one indicative of a corporation’s ability to tend to its debt obligations.

S&P views Flutter as being on a solid FOCF path — one that could lead to improved credit metrics going forward.

“We expect Flutter’s projected profit growth will spur material FOCF generation in the medium term and the group will generate close to $600 million-$700 million in 2024 and about $1.0 billion-$1.2 billion in 2025,” concluded the research firm.

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