Bally’s to invest $187 million in The Star Entertainment

PROVIDENCE, R.I. - Bally’s Corporation (NYSE: BALY), currently trading at $11.26 and operating with $2.45 billion in annual revenue, has announced a strategic investment in The Star Entertainment Group Limited (ASX: SGR), an Australian entertainment and gaming company. The transaction involves a multi-tranche issuance of convertible notes and subordinated debt totaling approximately AUD $300 million (USD $187 million).

The investment aims to support The Star’s turnaround efforts and enhance its status as Australia’s premier gaming destination. Bally’s, with a history of revitalizing underperforming casino businesses, plans to leverage its operational expertise to foster a resilient and sustainable business model for The Star. According to InvestingPro data, Bally’s faces its own challenges with a significant debt burden and rapid cash burn rate, making this strategic move particularly noteworthy.

Soo Kim, Chairman of Bally’s, expressed confidence in the future success of the partnership, stating, "This transaction provides Bally’s the opportunity to infuse The Star with what it needs to regain its position as Australia’s preeminent gaming destination." While Bally’s stock has experienced a significant 49% decline over the past six months, analysts maintain optimism with a consensus target suggesting potential upside. For deeper insights into Bally’s financial health and future prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports.

Upon conversion of the notes, Bally’s could own up to approximately 56.7% of The Star’s fully diluted share capital, assuming full subscription of the notes. However, this percentage could decrease if The Star’s major shareholder, Investment Holdings Pty Ltd, opts to subscribe for a portion of the notes.

The transaction is structured in two tranches, with the first consisting of three parts: Tranche 1A convertible into 9.71% of The Star’s pre-issue capital, Tranche 1B into 4.85%, and Tranche 1C as subordinated non-convertible debt. Tranche 2 is convertible into shares representing 50.3% of The Star’s pre-issue capital.

The conversion price is set at AUD 0.08 per share, and the notes mature on July 2, 2029, with an interest rate of 9.0% per annum. The issuance and conversion of certain tranches are conditional upon shareholder and regulatory approvals.

Bally’s has confirmed it has the funds available to support the transaction. The company has engaged MA Moelis Australia and Ord Minnett Limited as joint financial advisors, with Kirkland & Ellis LLP and MinterEllison as joint legal counsel, and Senet as Australian regulatory counsel.

The Star, headquartered in Sydney, operates casino and resort properties in Sydney, Brisbane, and the Gold Coast, employing around 8,000 team members. Bally’s, a global casino-entertainment company with a market capitalization of $546 million and a gross profit margin of 54%, operates 19 casinos across 11 states in the U.S. and has a growing omni-channel presence. InvestingPro subscribers can access 13 additional key insights about Bally’s performance and financial outlook.

This news is based on a press release statement from Bally’s Corporation.

In other recent news, Bally’s Corporation has seen a series of notable developments. Fitch Ratings downgraded Bally’s Issuer Default Rating from ’B’ to ’B-’, citing high leverage concerns and execution risks associated with the Chicago casino project. Additionally, Barclays and Stifel both reduced their price targets for Bally’s stock to $14, with Barclays noting a weaker-than-expected performance in the Casino & Resorts segment. Citizens JMP maintained a Market Perform rating, highlighting the company’s significant development pipeline, including projects in Chicago and New York.

Bally’s has also announced changes in its executive team, appointing Mira Mircheva as the new Chief Financial Officer. This executive reshuffle is part of Bally’s ongoing strategy to strengthen its market presence and diversify its offerings. Despite challenges, Bally’s continues to explore growth opportunities, such as potential gaming licenses and casino developments in various locations. The company’s financial structure has been adjusted post-merger with the Queen, with expectations of growth in certain segments.

Furthermore, Bally’s liquidity remains a concern, with obligations to fund the Chicago project potentially impacting financial flexibility. Analysts from Barclays and Stifel have expressed caution, with Stifel noting the complexity and uncertainty in forecasting future financial performance. These recent developments reflect Bally’s ongoing efforts to navigate a complex financial landscape while pursuing strategic growth initiatives.

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