S&P downgrades AP Gaming

Standard & Poor’s said it lowered the corporate credit rating on AP Gaming Holdings LLC to B from B+.

The outlook is stable.

The agency also said it lowered the rating to B from B+ on the company’s senior secured credit facility, which consists of a $25 million revolver and $155 million term loan.

The recovery rating remains at 3, indicating 50% to 70% expected default recovery.

The agency’s recovery analysis incorporates an expectation for the incurrence of $250 million in incremental term loan proceeds under the same provisions as the existing term loan, S&P said.

The proceeds from the expected incremental term loan, along with $115 million in pay-in-kind notes issued by AP Gaming Holdco Inc. and a $12 million PIK promissory note, will be used to fund its $382 million purchase of gaming equipment supplier Cadillac Jack Inc.

The downgrade reflects an expectation that the increase in debt to fund the acquisition of Cadillac Jack will result in weaker adjusted debt-to-EBITDA measures, expected to be sustained at more than 5x, S&P said.

The agency said it believes the acquisition signals the company’s willingness to increase leverage and maintain it at more than 5x, the threshold at which was previously known to trigger a downgrade.

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