Bally’s may need to explore asset sales or equity sales to raise the necessary financing to meet its obligations to various creditors.
In a Form 10-Q filing with the Securities and Exchange Commission (SEC), the regional casino operator informed investors that there is “substantial doubt” about its ability to continue as a going concern unless it pursues alternative capital-raising options, which could include debt financing. The regulatory concerns are partially related to the funding requirements for the operator’s planned $4 billion casino hotel in the Bronx, NY.
This project is set to be Bally’s largest ever, exceeding the cost of its Chicago integrated resort. So far, the company has invested $800 million in the Bronx venture, but it is believed that an additional $500 million needs to be raised to move the project forward.
Potential Asset Sale in Las Vegas
Although Bally’s has a history of raising capital in challenging situations, the source of funding for the Bronx casino remains uncertain. Gaming and Leisure Properties (NASDAQ: GLPI), the primary landlord of Bally’s, stated earlier this year that it is unlikely to provide full financing for the Bronx gaming venue.
In a recent note to clients, Citizens Equity Research analyst Jordan Bender indicated that Bally’s situation is not dire, but there is a suggestion that the operator could sell its operating rights at the former Tropicana site on the Las Vegas Strip.
“We do not believe the company has the ability to finish all of its projects without selling or bringing in a development partner at its current leverage levels,” notes the analyst. “We believe Las Vegas would be the most likely asset to be sold or have a partner brought in, given the language in the release only mentions non-gaming amenities and no longer refers to a casino at the site.”
Bally’s acquired the non-real estate assets of the Tropicana from Penn Entertainment (NASDAQ: PENN) for $150 million. Analysts have speculated for years that the gaming company could sell that interest, potentially at a significant profit. With capital constraints and uncertainty surrounding the Las Vegas venue, selling the operating rights could be a prudent move for Bally’s, especially since there is currently no operational casino hotel at the site. Gaming and Leisure owns the real estate.
On the other hand, Bally’s is reportedly seeking tenants for retail development at the Strip site, suggesting that this could provide a source of financing instead of an outright sale.
Preferential Financing in NYC
Bally’s has historically been more inclined to acquire rather than sell assets, expanding its portfolio from a regional operator to an international gaming company. This may suggest that the company may be hesitant to sell assets to raise capital.
“The 10-Q cites potential ‘asset monetization, equity sale, or debt financing’ to enhance liquidity, though we understand satisfying covenants through NYC financing is the preferred resolution,” observes Stifel analyst Jeffrey Stantial.
Bally’s is currently integrating its acquisition of William Hill owner Evoke Plc (LSE: EVOK), which the target company says is progressing as planned.