TEXT-S&P revises Scientific Games outlook

Overview
-- U.S. gaming services provider Scientific Games performed well
in the
first quarter and we expect the company will be able to further improve credit
measures this year.
-- We are affirming all ratings on the company, including our 'BB'
corporate credit rating, and revising our rating outlook to stable from
negative.
-- The stable rating outlook reflects our expectation that credit
measures will improve to a level we believe is in line with the current rating
before the end of 2012.

Rating Action
On May 31, 2012, Standard & Poor's Ratings Services affirmed its ratings,
including its 'BB' corporate credit rating, on New York City-based gaming
services provider Scientific Games Corporation and revised the rating outlook
to stable from negative.

Rationale
The revision of our rating outlook to stable reflects the company's strong
operating performance in the first quarter relative to our previously
published expectations for the full year 2012 and continued improvement in
credit measures. In the three months ended March 31, 2012, Scientific Games'
revenue and EBITDA improved 19% and 23%, year over year. Leverage improved
0.2x to 5.0x at March 31, 2012, from 5.2x at Dec. 31, 2011.

Furthermore, the outlook revision reflects our expectation that the company
will show continuing improvement in credit measures and that by the end of
2012, leverage will improve to below our 5x maximum leverage threshold for
Scientific Games' 'BB' corporate credit rating. We expect the company will
build in cushion relative to that maximum threshold to provide it with
flexibility to pursue additional strategic growth opportunities without
meaningfully impairing its financial risk profile.

Our rating factors in the expectation that Scientific Games' revenue will grow
in the high-single-digit percentage area in 2012. Our revenue assumptions
incorporate an expectation for instant ticket revenue growth in the low- to
mid-single-digit percentage area and a mid-single-digit percentage increase in
sales revenue (excluding the acquisition of Barcrest). Our performance
expectations for the company's lottery business factor in our U.S. economist's
forecast for modest consumer spending growth and changes in various lotteries,
including the Powerball price increase and the ability to sell some lottery
products through the Internet channel. We expect growth in the lottery segment
to moderate somewhat from first-quarter sales levels, which were aided by
strong jackpot activity. Additionally, we believe economic uncertainty in many
European markets could damper international growth. Our forecast also factors
in a modest level of incremental revenue associated with the company's
acquisition of Barcrest last year.

We expect Scientific Games' EBITDA will increase in the high-single-digit
percentage area in 2012. Our EBITDA forecast factors in an expectation for
about $50 million in cash distributions from joint ventures in 2012, roughly
in line with distributions received in 2011. Under our performance
expectations, we believe leverage will improve to the high-4x area in 2012,
and that the company will show further leverage improvement in 2013, building
in additional cushion relative to the 5x maximum leverage threshold.

Our 'BB' corporate credit rating on Scientific Games reflects our assessment
of the company's financial risk profile as "aggressive" and its business risk
profile as "fair," according to our criteria.

Our assessment of its financial risk profile as aggressive reflects our
expectation that our measure of leverage will improve somewhat from current
levels and remain below 5x over the intermediate term. It also reflects the
company's substantial acquisition activity and investments through joint
ventures, its "adequate" liquidity profile, and our expectation for interest
coverage to track around 3x over the near term.

Our assessment of Scientific Games' business risk profile as fair reflects
competitive market conditions in the lottery industry for contract renewals
and for new contracts, which often result in pricing pressure; the mature,
capital-intense nature of the online lottery industry; and the company's
limited business diversity. Offsetting factors are Scientific Games'
leadership position in the instant ticket lottery segment of the gaming
industry, a diversified customer base, and substantial recurring revenue and
cash flow, given long-term contracts with renewal options that are typically
exercised.

Scientific Games is a leading integrated supplier of instant tickets, lottery
gaming systems and services, and server-based interactive gaming machines and
systems to lottery and gaming organizations worldwide. While the company
remains a distant second in the lottery systems segment, behind industry
leader Lottomatica SpA, Scientific Games is the leader in the instant ticket
segment of the lottery industry, which has grown more rapidly in recent years.

Liquidity
Based on the company's likely sources and uses of cash over the next 12 to 18
months and incorporating our performance expectations, Scientific Games has an
adequate liquidity profile. Relevant factors in our assessment of Scientific
Games' liquidity profile include the following:
-- We expect the company's sources of liquidity over this period to
exceed its uses by 1.2x or more.
-- We expect that net sources of liquidity would be positive, even if
forecasted EBITDA declined 15%.
-- We believe that Scientific Games has sufficient covenant headroom,
such that a 15% decline in forecasted EBITDA would not result in a breach of
financial covenants.
-- We believe Scientific Games has a sound relationship with lenders and
a satisfactory standing in credit markets.

Liquidity sources include a $250 million revolving credit facility, a moderate
cash balance, and internally generated cash. As of March 31, 2012, the company
had approximately $189 million in availability under its revolving credit
facility (after accounting for letters of credit outstanding) and a cash
balance of $100 million.

In the 12 months ended March 31, 2012, Scientific Games generated about $144
million in cash flow from operations and spent about $92 million on capital
expenditures. We expect that operating cash flow generation in 2012 will be
sufficient to cover our expectations for around $150 million in capital
expenditures and that the company will generate a modest amount of free
operating cash flow (FOCF) that it could use for debt repayment, modest-sized
acquisitions, or possible additional strategic growth opportunities.

The company's credit facility includes several financial maintenance
covenants. The total leverage covenant is set at 5.75x through Dec. 31, 2013,
5.50x for all of 2014, and 5.25x thereafter. The senior leverage covenant is
set at 2.75x, and the interest coverage covenant is at 2.25x. Under our
forecast assumptions, the company maintains adequate cushion with respect to
these financial maintenance covenants.

Debt maturities are manageable over the next few years--consisting primarily
of amortization payments under the term loan--until the company's term loan
and revolver mature in June 2015.

Scientific Games has a $200 million share repurchase authorization in place
through the end of 2012, with roughly $174 million remaining. We have not
incorporated any meaningful future share repurchase activity into our rating
assumptions, and we do not expect the company to pursue share repurchases
until it has built in some level of cushion in credit measures.

Outlook
Our rating outlook on Scientific Games is stable, reflecting our expectation
that credit measures will improve to a level we believe is in line with the
current rating before the end of 2012. Furthermore, we expect the company will
show continuing leverage improvement over the next two years, and will build
in some cushion relative to a 5x maximum leverage threshold to provide it with
some flexibility to make additional strategic investments without meaningfully
impairing its financial risk profile. For 2012, we have factored into our
rating a high-single-digit revenue and EBITDA increase. Under our performance
expectations, we expect leverage to be in the high-4x area at the end of 2012
and EBITDA coverage of interest around 3x.

We could lower the rating if operating performance is meaningfully worse than
our current expectations and the company does not demonstrate organic growth
in its existing businesses or if the company embarks on larger-than-expected
investments for acquisitions or other strategic growth opportunities, such
that we no longer believe the company has the ability to reduce and maintain
leverage below 5x over the next two years. Furthermore, we could also lower
the rating if the company completes any meaningful share repurchases, as this
action would signal a more aggressive financial policy than we have currently
contemplated.

A higher rating is unlikely over the next two years, given our expectation
that Scientific Games will pursue investment opportunities and that leverage
will remain in the mid- to high-4x area on average.

Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

Ratings List

Ratings Affirmed; Outlook Action
To From
Scientific Games Corp.
Corporate Credit Rating BB/Stable/-- BB/Negative/--

Ratings Affirmed; Recovery Ratings Unchanged

Scientific Games Corp.
Subordinated BB-
Recovery Rating 5

Scientific Games International Inc.
Senior Secured BBB-
Recovery Rating 1
Subordinated BB-
Recovery Rating 5