Golden Entertainment Credit Outlook Lifted to ‘Stable,’ Ratings Upgrade Possible

Posted on: May 24, 2021, 07:26h. 

Last updated on: May 24, 2021, 12:05h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The outlook on Golden Entertainment’s (NASDAQ:GDEN) B3 credit rating was recently upgraded by Moody’s Investors Service, and while an alteration to that grade wasn’t made in the assessment, it’s a possibility in the future.

Golden Entertainment
The Strat Las Vegas is pictured against the dark Las Vegas sky. Owner Golden Entertainment saw the outlook on its credit rating upgraded. (Image: Las Vegas Review-Journal)

The research firm raised its outlook on the gaming company’s debt grade to “stable” from “negative” in a new report. Golden’s B3 rating is well into junk territory, though that’s the case for a slew of mid-sized and smaller casino operators.

“The company’s improved earnings before interest, taxes, depreciation and amortization (EBITDA) margin since reopening, including performance in early 2021, positive free cash flow and good liquidity, coupled with the expectation for debt reduction, are reducing leverage from the peaks hit during the coronavirus and improving the company’s flexibility to manage amid the lingering effects of the pandemic,” said Moody’s.

The move to “stable” from “negative” factors in strength in Golden’s businesses, including its gaming route unit and PT’s Entertainment, which controls 60 bars, pubs, and casual dining restaurants, follow 2020 shutdowns forced by the COVID-19 pandemic.

Golden Entertainment Glittery Outlook

While Moody’s didn’t commit to when or if Golden’s credit rating will be upgraded, there’s no denying there’s enthusiasm for the stock.

Up 104.63 percent year-to-date, the Strat operator is easily one of the best-performing gaming equities in 2021. Some analysts believe the combination of pent-up demand, rising levels of coronavirus vaccinations, and vibrancy in the key Las Vegas locals (LVL) market will fuel more upside for the shares. The stock closed just under $41 last Friday, but one analyst believes a run to $60 is possible.

On the credit side, Moody’s notes Golden’s maturity profile is favorable, and the gaming operator’s efforts to reduce debt are commendable.

“The maturity profile is otherwise good with the term loan maturing in October 2024,” said the ratings agency. “Golden’s net leverage is currently above 5.85x, but Moody’s expects covenant leverage to fall below this level in the second quarter, with the cushion improving thereafter.”

Other Golden Catalysts

At the end of the first quarter, Golden had $155 million in cash, which is more than 10 percent of its current market value of $1.15 billion. That could be a sign the operator’s market capitalization isn’t adequately reflecting that cash.

It almost certainly isn’t reflecting the $1.2 billion worth of unused Las Vegas real estate the company holds, or the upside that could be accrued if it wins a gaming route contract in Pennsylvania.

For now, it remains to be seen if Golden’s B3 rating changes for the better. But it’s not out of the question.

“The stable outlook considers the recovery in the company’s business and margin improvement exhibited since reopening, and the expectation for sustained improvement in 2021,” adds Moody’s. “Ratings could be upgraded if the company’s facilities remain open and earnings recover such that consistent and comfortably positive free cash flow and sustained reinvestment flexibility is fully restored, and debt-to-EBITDA is sustained below 5.75x.”