Bally’s Hit with Another Credit Rating Downgrade

Posted on: April 1, 2024, 04:13h. 

Last updated on: April 2, 2024, 09:15h.

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

Bally’s (NYSE: BALY) accomplished a dubious trifecta as its credit rating has been lowered by a third major ratings agency.

Bally's
Bally’s on the Atlantic City Boardwalk. The operator saw its credit rating downgraded by a third ratings agency on Monday. (Image: Bloomberg)

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.”