Flutter Selling $1.05B in Debt with BBB- Rating

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Flutter Selling $1.05B in Debt with BBB- Rating

FanDuel's parent company, Flutter Entertainment (NYSE: FLUT), said on Tuesday that it would be offering $1.05 worth of senior secured notes with a 2029 maturity date.

According to the Dublin-based gaming company, the proceeds of the debt sale, which included bonds denominated in dollars and euros, will be used "to repay borrowings under the existing multi-currency revolving credit facility" and "to repay borrowings under a credit facility attained in July 2018."

With this statement, Flutter has sold its debt for the first time since listing on the New York Stock Exchange (NYSE) in January. The firm wants to increase its exposure to a wider range of investors and improve its access to financial markets. 

The London Stock Exchange (LSE) is where Flutter is primarily listed, but the business intends to request that investors move the principal listing to the New York Stock Exchange (NYSE) during its annual meeting next month.


Flutter Debt Prospects Have Improved

S&P Global Ratings affirmed the gaming company's credit grade of "BB+" and assigned a rating of "BBB-" to the recent Flutter debt offering in a report released on Tuesday. Additionally, the research organization changed the operator's credit profile's prognosis from "stable" to "positive."


"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.


FanDuel is the biggest online sportsbook operator in the United States, and Flutter owns 95% of the company. The fastest-growing portion of the company's profitability is its exposure to the US, which contributes significantly to its overall profitability. This highlights the relevance of FanDuel within the larger Flutter investing thesis.

According to Flutter, the addressable sports betting and iGaming market in the United States is expected to grow from $9 billion in 2022 to over $40 billion by 2030. As of the fourth quarter of 2023, Flutter held a dominant market position in the United States, accounting for 26% of the iGaming market and 53.4% of the online sport betting market (based on net revenue). This could result in significant increases in short- to medium-term earnings and revenue, according to S&P.


Debt Can Be Satisfied by Flutter Through Robust Free Cash Generation

If Flutter maintains its strong FOCF generation in the US and keeps its leverage in the 3x to 3.5x level, it may be able to get an improvement to its junk credit rating. One measure of a company's quality that shows how well it can manage its debt is free cash flow.

According to S&P, Flutter is on a strong FOCF path, which could eventually result in better credit metrics.

"The research firm concluded that Flutter's anticipated profit growth will drive significant free cash flow generation in the medium term. The group is expected to generate close to $600 million to $700 million in 2024 and approximately $1.0 billion to $1.2 billion in 2025."