New Coverage: Playtika Has Significant Flexibility to Incur Additional Secured Debt, Access to Leverage-Based Restricted Payments and Investments After IPO, Refinancing, Amendments

Relevant Items:
Playtika Covenants Tear Sheet, Debt Document Summaries
Playtika Debt Documents

Playtika develops and offers free-to-play mobile games, supported by live-game operations and a proprietary technology platform to drive user engagement and monetization. Playtika’s game portfolio comprises 15 games, including several casino-themed games, which accounted for approximately 56% of revenue in 2020. Two titles, Slotomania (a casino-themed game) and Bingo Blitz (a “casual” game), made up about half of Playtika’s revenue in 2020. Continue reading for our Americas Covenants team's analysis of the Playtika flexibility and Request a Trial for access to the linked debt documents, tear sheets, and summaries as well as our coverage of thousands of other stressed/distressed debt situations.

Playtika was founded in Israel in 2010 and acquired in 2011 by Caesars Interactive Entertainment, which sold the company in 2016 to a consortium including affiliates of Giant Network Group for $4.4 billion.

On Jan. 20, Playtika completed its initial public offering of about 80 million shares of common stock at a price of $27 per share. The company received approximately $469 million of net proceeds from the IPO. About 61 million shares were sold by existing stockholder Playtika Holding UK II Ltd. (“Playtika Holding UK”); Playtika received no proceeds from those sales.

According to the company’s disclosures (here and here), voting power in Playtika is controlled by Giant Chairman Yuzhu Shi through his indirect interest in Playtika Holding UK, which continued to hold approximately 77.5% of Playtika’s common stock post-IPO. Playtika Holding UK is owned by Alpha Frontier Ltd. Yuzhu Shi has voting control of all Playtika common stock held by Playtika Holding UK through his ownership interests and voting control in Alpha.

The company on June 14 reported that Shi and his affiliates had entered into an agreement with Giant Network Group, after which a Giant entity would “control the voting power of the shares of Playtika common stock representing 60.2% of the shares of common stock of Playtika currently controlled by Mr. Shi and his affiliates.” If approved by Giant’s stockholders, the transaction is expected to occur during the fourth quarter of 2021.

The following diagrams, from the IPO prospectus, show the ownership structure of Playtika before and after the IPO:

Note, however, that the post-IPO ownership percentages indicated above do not reflect the exercise of an underwriter option to purchase up to 10,425,000 additional shares (which was exercised in full). Accounting for those sales, Playtika Holding UK now owns 77.5% of Playtika’s common stock.

On May 11, Playtika released its financial results for the first quarter of 2021, reporting first-quarter revenue of $639 million and adjusted EBITDA of $258 million, up 19.6% and 38.6%%, respectively, over the prior-year period.

Playtika’s current debt structure consists of a $1.9 billion term loan and an undrawn revolving facility, which are governed by the same credit agreement, and $600 million of unsecured senior notes due 2029 (the “2029 Notes”). The term loan was established in connection with a March 2021 amendment to the credit agreement.

According to Reorg’s CLO database, at least 92 CLO managers are involved in Playtika’s new term loan.

The company’s capital structure as of March 31 is summarized below:

In this article, we discuss the March 2021 amendment to the credit agreement, the company’s current liquidity and current restrictions under the applicable debt documents.

In March 2021, Playtika amended its credit agreement, entering into a $1.9 million refinancing term loan, and issued $600 million of unsecured senior notes due 2029. Proceeds from the new term loan and 2029 Notes were used to refinance $2.375 billion of existing term loan debt.

The March 2021 credit agreement amendment also increased revolving commitments to $600 million from $550 million, extended term loan maturity to 2028 from 2024 and revolver maturity to 2026 from 2024, and significantly reduced interest rates. According to a press release, the refinancing is expected to reduce annual cash interest by more than $80 million.

The amendment also included many borrower-friendly changes, including increased basket capacities, through the addition of EBITDA-based grower components as well as increases to fixed amounts. For example, the general debt and general liens baskets were increased from $100 million to the greater of $200 million and 25% of EBITDA. The addition of grower baskets will further increase the company’s flexibility should it grow its EBITDA.

The amendment also loosened leverage ratio tests under leverage-based baskets, by 0.5x for payments baskets and by 0.75x for debt and liens baskets. (The leverage-based debt and liens tests were also changed to net secured leverage tests from net first lien debt tests, but the distinction is currently inconsequential because the company has no junior lien debt.)

Other notable borrower-friendly changes in the March 2021 amendment are summarized in the table below:

 

As of March 31, Playtika reported liquidity of over $1.5 billion, consisting of approximately $924 million in cash and equivalents and $600 million of undrawn revolving commitments.

 

• Financial covenant: The credit agreement includes a financial covenant requiring compliance with a 6.25x net first lien leverage ratio, which applies only to the revolving facility and is tested only when revolving usage exceeds 30%.Since the revolver is currently undrawn, compliance with the covenant is not currently required. If required, the company would comply easily given its net first lien leverage of approximately 0.9x as of March 31.


• Guarantor coverage test: The credit agreement requires the borrower and subsidiary guarantors to generate at least 80% of EBITDA and own all “Material Intellectual Property” (defined as registered copyrights and trademarks for games that generate more than 5% of EBITDA).Guarantor coverage is tested quarterly; failure to meet the test requires guarantees from additional subsidiaries but is not by itself a default or event of default.


• Debt and liens: Currently, Playtika can incur approximately $4.68 billion of additional first lien debt (which includes $600 million under its existing revolver and $200 million of incremental revolving commitments) and $506 million of structurally senior debt (which includes $253 million of shared first lien capacity), as well as unsecured debt in compliance with a 2x fixed charge coverage ratio test.


• Additional structurally senior debt capacity: The company could potentially incur additional structurally senior debt through refinancings, though such additional debt would reduce first lien capacity. While the credit agreement places an aggregate cap (currently $253 million) on debt of nonguarantor restricted subsidiaries (“NGRS”) under specified baskets (the NGRS, leverage-based, incremental equivalent and assumed/acquisition finance debt baskets), the cap does not apply to “Permitted Refinancing Indebtedness” for such baskets (except the NGRS basket). Therefore, the cap could potentially be exceeded by refinancing debt initially incurred under the leverage-based or incremental equivalent debt basket with new NGRS debt, which would not count toward the cap.While the 2029 Notes also include an aggregate NGRS cap, the cap does not apply to debt incurred under the debt facilities basket, which is oversized relative to the company’s actual credit facilities and could be used for structurally senior debt.Playtika could also refinance its $600 million of senior notes with structurally senior debt, since the credit agreement allows “Permitted Refinancing Indebtedness” for the applicable basket, and this term does not prohibit refinancing with nonguarantor debt.


• Dividends and investments: Playtika is currently permitted to pay dividends and make investments (including in unrestricted subsidiaries) under leverage-based baskets, subject to a 2.5x net total leverage ratio for dividends (and equity repurchases), and a 3.25x net total leverage ratio for investments. As of March 31, the company’s net total leverage was approximately 1.5x.Under the 2029 Notes, restricted payments made under certain baskets, including the leverage-based basket, will reduce capacity under the builder basket. Therefore, builder basket capacity would be reduced by any restricted payments made in reliance on the currently accessible leverage-based restricted payments basket.


• Restricted debt: Playtika’s debt documents do not restrict the prepayment of unsecured or junior lien debt. Prepayment restrictions apply only to payment-subordinated debt, which the company currently does not have.


• IPO proceeds: Approximately $469 million of proceeds received in connection with the company’s January 2021 IPO likely increased “Cumulative Credit” capacity for dividends and investments under the credit agreement but did not increase builder basket capacity under the 2029 Notes.Both the credit agreement and the 2029 Notes permit annual dividends up to 6% of proceeds received from public stock offerings; these baskets currently permit approximately $28 million per year based on the IPO proceeds.

Playtika’s covenants tear sheet is HERE, and comprehensive analyses on the credit agreement and 2029 Notes are HERE.

--Mitch Oates