Bally’s Credit Rating, Outlook Downgraded by Moody’s

Posted on: March 26, 2024, 04:36h. 

Last updated on: March 27, 2024, 11:41h.

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

Bally’s (NYSE: BALY) credit rating was downgraded further into junk territory and the outlook on that grade was lowered to “negative” from “stable” by Moody’s Investors Service on Monday.

Bally's Chicago gross gaming revenue
Bally’s temporary Chicago casino at Medinah Temple. The operator’s credit rating was lowered by Moody’s. (Image: Axios Chicago)

The research firm now rates the regional casino operator “B2” down from “B1.” The new grade is five notches into noninvestment-grade territory. It arrived as the Rhode Island-based gaming company is attempting to procure financing to complete a Chicago casino hotel, its most expensive project to date.

The company is planning on constructing a new casino facility in downtown Chicago. Chicago is in an unrestricted subsidiary and is anticipated to be financed on a project finance basis, and is expected to return to the restricted group after it becomes operational in Q4 2026,” noted the ratings agency. “Moody’s anticipates it will contribute to elevated leverage levels over each of the next two years on a consolidated basis.”

Earlier this month, S&P Global Ratings trimmed Bally’s credit grade further into junk territory to “B-“ from “B.” S&P believes Bally’s will procure the financing necessary to complete the Chicago venture, but added the gaming company faces risks.

Downgrades Come as Bally’s is Takeover Target

Moody’s downgrade of Bally’s credit profile arrived two weeks after Standard General, the hedge fund that’s the casino operator’s largest shareholder, offered $15 a share to take the company private.

That offer is less than half the amount the money manager offered for Bally’s in 2022, and the bid stoked speculation about the fate of the Chicago project. Standard General has since allayed that concern, saying the Windy City casino will be completed if it’s successful in acquiring the gaming company. A committee of independent directors is mulling the buyout proposal.

Beyond Chicago, Bally’s could contend with high costs of expansion in marquee markets such as Las Vegas and New York, which could spark higher leverage.

“Additional acquisitions or development opportunities, such as potentially developing a gaming resort facility in New York at its recently acquired golf course, or redeveloping the Tropicana casino site in Las Vegas, while uncertain, pose risk of elevating leverage for longer and would require significant capital investment,” added Moody’s.

Leverage Potentially Worrisome for Bally’s

High leverage and junk credit ratings are problematic for companies seeking financing. That’s because if those firms issue corporate debt, they must do so with high interest rates to compensate creditors for perceived risk. The negative outlook on Bally’s is, in part, a result of its weak leverage profile.

The negative outlook reflects the company’s high leverage level and elevated risk associated with its planned development activities, which could leave leverage higher for longer,” observed Moody’s.

Further downgrades to Bally’s credit rating could materialize if liquidity deteriorates, or if the operator’s debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio remains above 7.5x for an extended period, according to the ratings agency.