In an unwelcome turn of events for Bally’s, a regional casino operator, Moody’s Investors Service plunged the company’s credit rating further into the murky depths of junk grade – casting a formidable shadow over its ambitious plans to build its priciest project yet; a downtown Chicago casino hotel.
On top of this downgrade which is now rated ‘B2’ from the previous ‘B1’, Moody’s also revised the outlook from ‘stable’ to ‘negative’, resulting in the company wading five steps deep into the precarious realms of non-investment grade territory.
Bally’s ambitious project, nestled in the architecturally rich landscape of Medinah Temple in downtown Chicago, is anticipated to be financed on a project finance basis. It’s expected to return to the restricted group once it becomes fully operational towards the end of 2026, according to the ratings agency. Moody’s underlines that this venture will concurrently contribute towards escalating leverage levels over the subsequent couple of years on a consolidated footing.
Notably, this disheartening downgrade followed a similar action from S&P Global Ratings, which lowered Bally’s credit grade further into junk territory to ‘B-’ from ‘B’. While S&P believes Bally’s will secure the requisite financing to facilitate the Chicago project, they warn that the gaming company may encounter unanticipated risks.
This downgrade dovetails into Bally’s ongoing discussions about possibly going private. The casino operator, with Standard General being its largest shareholder, has been pitched a buyout proposal of $15 a share, igniting conjectures about the future of the Chicago project. While Standard General has confirmed that the Chicago casino project would be brought to fruition if it acquires the company, an independent director committee is yet to make a definitive decision.
Bally’s is also juggling high costs stemming from expansions into prominent markets like Las Vegas and New York, which could feasibly exacerbate its debt leverage. Potential ventures, such as developing a gaming resort facility in New York at a freshly acquired golf course, or the reimagining of Tropicana casino site in Las Vegas, could further heighten its leverage over a longer duration and would necessitate substantial capital investment.
Junk credit ratings, coupled with high leverage, can spell trouble for companies seeking financing, as they are compelled to issue corporate debt with sky-high interest rates to indemnify creditors for the inherent risk. Moody’s ‘negative’ outlook on Bally’s partially emerges from the company’s frail leverage profile.
Moody’s warns that Bally’s credit rating might be subject to further downgrades if liquidity dwindles or if the company’s debt to EBITDA ratio continues to hover above 7.5x for an extended timeframe.
