The Wall Street Journal reported that Bally’s Corporation (NYSE:BALY) is facing mounting financial strain as it pursues an aggressive expansion strategy after the casino operator disclosed “substantial doubt” about its ability to continue as a going concern without securing new financing. It noted the risk of violating liquidity and leverage requirements within a year.
Bally’s is selling assets, issuing stock, and taking on new debt to fund its operations. Meanwhile, the company continues building major projects like a $4 billion Bronx casino resort and a $1.34 billion Chicago casino.
Bull Case
Bally’s Corporation (NYSE:BALY) is making substantial revenue amid its financial pressure. Second-quarter revenue increased 20% year over year to $792.2 million, showing demand across its casino, sportsbook, and iGaming businesses. Strong operating revenue could give Bally’s more cash-generation capacity as management works to finance its development pipeline.
Bally’s has several financing and asset-sale options to address its liquidity needs. The firm has already used sale-leaseback transactions to raise capital. Gaming and Leisure Properties has committed up to $2.07 billion across construction funding and other financing arrangements. Bally’s can use more asset monetization and financing to reduce near-term pressure and keep on developing its major projects.
Bally’s owns valuable development assets that could back up its long-term growth and financing strategy. The business holds the license for its Bronx project and rights to develop land at the former Tropicana site in Las Vegas. It gives Bally’s exposure to two high-value gaming markets. If Bally’s secures adequate financing, these projects could expand its earnings base and improve the value of its development portfolio.
Bear Case
Bally’s Corporation (NYSE:BALY) heavy debt load creates the most immediate risk for shareholders. The company warned that its liquidity and leverage position could prevent it from meeting requirements under its revolving credit facility without additional financing or planned transactions. Fitch Ratings maintains a B- rating with a negative outlook because of elevated leverage and expected free-cash-flow deficits. Hence, Bally’s faces significant pressure to raise capital or monetize assets before its financial position worsens.
The Chicago project could require more capital than Bally’s currently expects. The business still has roughly $400 million of contractual spending remaining and expects total development costs to exceed its contractual obligations. Higher building costs could demand more money and strain cash flow while Bally’s works to finish the permanent casino.
Bally’s traditional casino strategy faces increasing competition from online gambling. Online sports betting and iGaming continue to expand faster than standard casino gaming. Bally’s has committed significant capital to large physical projects in Chicago, New York and Las Vegas. If online gambling steals more customer spending, Bally’s may fail to earn the profits it needs to pay off its heavy debts.
Hedge Fund Sentiment
Hedge fund interest in Bally’s Corporation (NYSE:BALY) is minimal and shrinking: just 4 funds held a stake at the end of the second quarter, down from 5 in the first, with a combined position value of about $41 million, according to Insider Monkey’s database. Boyd Gaming, a more diversified regional casino operator, drew steadier interest, with 44 hedge funds holding a stake in the second quarter versus 43 in the first and position value up slightly to $740 million from $707 million.
Conclusion
Bally’s revenue growth and valuable development assets give the company opportunities to expand its earnings base and solidify its financing options. However, heavy leverage, substantial funding needs for the Chicago project, and faster growth in online gambling create major risks for shareholders. Bally’s ability to secure financing and make attractive returns from its major development projects will determine whether its expansion strategy can overcome its financial pressure.
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