Bally’s Hit with Another Credit Rating Downgrade
Posted on: April 1, 2024, 04:13h.
Last updated on: April 2, 2024, 09:15h.
Bally’s (NYSE: BALY) accomplished a dubious trifecta as its credit rating has been lowered by a third major ratings agency.
On Monday, Fitch Ratings downgraded the regional casino operator’s credit grade to “B” from “B+”, citing increasing leverage. The research firm has a “negative” outlook on that rating, which moved deeper into noninvestment-grade territory.
The downgrade reflects the relatively high leverage that is above Fitch’s rating downgrade sensitivities and are now expected to be higher for longer; execution risk in the financing and development of the Chicago development; as well as other potential development opportunities,” noted the research firm.
The research firm added that Bally’s expansion opportunities, including a planned $1.1 billion casino hotel in Chicago, as well as weakness in its North American digital unit could be continued drags on earnings before interest, taxes, depreciation, and amortization (EBITDA).
Interesting Timing for Another Bally’s Credit Rating Downgrade
With the move by Fitch, all three major ratings agencies have lowered Bally’s further into junk status in less than two months. Moody’s Investors Service did so last week.
Downgrades of the gaming company’s credit profile are piling up as it looks to procure $800 million in financing to complete the Chicago integrated resort, implying creditors could demand higher interest rates due to Bally’s lower credit grades.
Though it’s likely just a coincidence, the Fitch downgrade arrived a day before the scheduled closing of the Tropicana Las Vegas, the operator’s lone Strip venue. The reductions in Bally’s credit grade also arrived as Standard General, the company’s largest shareholder, is attempting to acquire the firm for $15 a share.
“The Negative Outlook reflects leverage that the company is operating slightly around Fitch’s 7.0x downgrade sensitivities, which could remain elevated during the Chicago construction period. The Outlook also reflects the uncertain outcome of the offer by Standard General to purchase the remaining shares of Bally’s,” observed Fitch.
Leverage Problematic for Bally’s
As it searches for capital to complete its permanent venue in Chicago, Bally’s is, in the eyes of Fitch, hindered by elevated leverage. The ratings agency estimates the operator’s 2023 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) leverage to be 7.2x, and that could rise as the Windy City project moves along.
The proposed Chicago casino development will likely lead to medium-term elevated consolidated leverage metrics through 2026, with gross consolidated adjusted leverage likely remaining outside of Fitch’s sensitivities during construction,” said Fitch.
The research firm also noted that there are uncertainties, including persistently high inflation, that could weigh on Bally’s regional casino business while pointing out that, due to the operator’s laggard status in iGaming and online sports wagering, those industries won’t be a “material credit driver in the near to intermediate term.”
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Investors in Bally's are watching closely how BALY stock struggles to surpass even a $14.00 valuation. When will thay Bally's accelerating casino revenue that is hoped for actually be achieved? An important factor in generating that revenue includes retaining new customers. Bally's Chicago will get only one chance to make that first impression with each new customer. Ask Bally's current casino hotel guests nationwide if they are genuinely happy with their most recent visits to the many Bally's casino hotel properties throughout the country. Read the most recent online reviews for Bally's casinos posted in just the past six months. Ask those same patrons how soon they plan to return. Are they telling their friends, "That was really a great time at Bally's last weekend! It was over the top and I enjoyed everything about ithe place. Let's plan to go back there as soon and often as we can!" You won't find a single review like that, especially if you don't take the time to actually look for the current pulse check of what is going on right now. Maybe repeating the same actions over and over again while expecting different results will not contribute to the accelerating casino revenue that is being hoped for by Bally's. Those current customer reviews spell it out right now in real time.
Who wants to be the last Bally's bondholder who ends up holding the bag? How much more will Bally's credit ratings drop once they take on additional debt to finance further development of their underperforming casino in Chicago? How much further will Bally's credit ratings fall if their long-shot bid to build a New York City casino eventually fails? There are good reasons why Bally's debt is rated below investment grade....
In early December, reporters at PlayIllinois.com revealed that Bally’s Chicago is drawing the eye of both local and federal investigators. That was according to Crain’s Chicago Business, which reports that authorities are looking at the bidding process that resulted in Bally’s winning the opportunity to construct a casino in Chicago. The probes were spurred by complaints from unsuccessful bidders, the report said. No one close to the investigations has commented on the probes. However, Chicago Alderman Brian Hopkins confirmed the federal investigation, and claimed the entire Bally’s Chicago project could be at risk of coming to a complete halt. The federal investigation is reportedly being spearheaded by the U.S. Attorneys’ Office. City of Chicago Inspector General Deborah Witzburg is reportedly running the city’s investigation. Keep your eye on all of this!