Credit Ratings Triple Blow for Bally’s Amid High-Risk Ventures

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In the world of credit ratings, Bally’s, a regional casino operator listed on the New York Stock Exchange, has hit a dubious hat trick. Following suit from two other major credit rating agencies, Fitch Ratings is the latest agency to downgrade the company’s credit rating from “B+” to “B”. With this move, Bally’s sinks further into the threatening depths of noninvestment-grade territory. The firm’s high leverage and embroilment in high-risk projects were significant contributors to this negative shift in credit standing.

Fitch Ratings underscored its concerns about Bally’s financial outlook, linking the downgrade to high leverage levels that surpassed the firm’s downgrade sensitivities, and an expected protraction of this fiscal position. It also pointed to risks associated with the financing and development of the ambitious Chicago project where the stakes are high, and other potential development opportunities.

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Simultaneously, the research firm flagged issues with Bally’s aggressive expansion plans. It specified its concern about a planned $1.1 billion casino-hotel in Chicago and a persistently underperforming North American digital unit, both of which could continue to be significant drags on earnings before interest, taxes, depreciation, and amortization (EBITDA).

Just days ago, Moody’s Investors Service downgraded Bally’s, rendering Fitch’s downgrade today the third blow to the company’s standing within the space of two months. This trio of downgraded ratings comes at a critical juncture for Bally’s as it is actively seeking to secure $800 million in financing to complete its planned integrated resort in Chicago. The precariousness of this situation is further amplified by the possibility of creditors demanding higher interest rates, given the deteriorating credit grades.

Adding an additional layer of complexity to the scenario, Fitch’s downgrade happened just a day before the scheduled closing of the Tropicana Las Vegas, Bally’s only Strip venue. Interestingly, this downgrade came at the same time when Standard General, Bally’s largest shareholder, is making a bid to acquire the company for $15 a share.

Amid the tense air, Fitch issued a “Negative Outlook” on Bally’s, reflecting ongoing apprehensions about the company’s balancing act around Fitch’s 7.0x downgrade sensitivities- something which might remain elevated during the Chicago construction period. The Outlook also underscores the ambiguous fate of Standard General’s offer to purchase the remaining shares of Bally’s.

Meanwhile, Bally’s scramble for capital to accomplish its planned venue in Chicago is aggravated by what Fitch sees as the company’s problematic high leverage. The ratings agency projected the operator’s 2023 earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) leverage to be 7.2x, and warned that this figure could surge as the Chicago project progresses.

Looking ahead, Fitch anticipates the Chicago casino development’s completion to maintain Bally’s elevated consolidated leverage metrics through 2026. Moreover, the firm also cautions about underlying uncertainties like continuously high inflation that might impact Bally’s regional casino business. Citing the company’s sluggish growth in iGaming and online sports wagering, Fitch asserted these industry segments aren’t expected to be significant credit drivers in the immediate future.