Bally’s Corporation IDR downgraded by Fitch Ratings due to high leverage

Investing.com -- Fitch Ratings has lowered Bally’s Corporation’s Issuer Default Rating (IDR) from ’B’ to ’B-’, alongside downgrading the rating on the senior secured term loan and revolver to ’B+’ with a Recovery Rating of ’RR2’ from ’BB’/’RR1’. The unsecured notes were also downgraded to ’ CCC (WA:CCCP)’/’RR6’ from ’CCC+’/’RR6’, with a Negative Rating Outlook.

The downgrade on March 28, 2025, was mainly attributed to Bally’s high leverage exceeding Fitch’s downgrade sensitivities, which is anticipated to stay high for a longer period. The development of the Chicago projects and other potential development opportunities present execution risks. The North America Interactive segment continues to weigh on EBITDA, although this is offset by a diverse portfolio of regional gaming properties and the stable International Interactive business.

The Negative Outlook underscores leverage concerns, with Bally’s operating near Fitch’s 8.0x downgrade sensitivities. Fitch calculated Bally’s 2024 EBITDAR leverage at 7.0x, which is expected to rise to the 8.0x-9.0x range in the near term due to new debt issuance and higher lease-adjusted debt.

The company is set to complete the Chicago Casino (EPA:CASP) Development project through sale-leasebacks of the Chicago permanent casino and two regional casinos. However, a saturated Chicago gaming market, a higher-than-average gaming tax rate, and the typical ramp-up of a new casino development pose challenges.

Despite having adequate liquidity with no drawdowns on its $620 million revolver and no material maturities until 2028, Bally’s liquidity is shrinking. The company is obligated to contribute up to $450 million of additional funding to complete the Chicago project, which Fitch expects will likely be funded by the revolver, barring any potential asset sales. The revolver matures in October 2026, and any outstanding amounts must either be extended or refinanced.

Bally’s has an agreement to sell and lease back the Twin River Casino to Gaming & Lodging Leisure Properties, Inc. (GLPI) until Sept. 30, 2026. The agreed sales price is $735 million, and GLPI will receive an annual rent payment of approximately $58.8 million with escalators. Although the sale proceeds could ease Bally’s Chicago contribution burden, the covenant resolution remains uncertain.

Bally’s currently operates 16 properties in 10 states and has a strong presence in its International Interactive segment, which has maintained a relatively stable market share in its UK operations. Despite the product diversification benefit from the U.S. interactive business, Fitch does not expect it to be a material credit driver in the near to intermediate term due to the negative EBITDA generated in the segment and the uncertainty of achieving profitability amidst intense competition.

The ’B-’ rating reflects Bally’s diversified U.S. regional gaming footprint and international digital presence, as well as its high EBITDAR leverage. Bally’s aggressive development program offers further growth opportunities but also poses execution and financing risks.

The recovery analysis assumes that Bally’s would be considered a going concern in bankruptcy, and the company would be reorganized rather than liquidated. The recovery ratings contemplate roughly $3.0 billion of secured debt claims and approximately $1.485 billion of unsecured debt claims. The first-lien secured credit facilities and notes would receive an ’RR2’ recovery (B+) and the unsecured notes would receive an ’RR6’ recovery (CCC).

Factors that could lead to a negative rating action or downgrade include EBITDAR leverage sustained above 7.0x, EBITDAR fixed charge coverage ratio at 1.0x or below, or inability to make progress on the revolver maturity or Twin River sale-leaseback. Conversely, factors that could lead to a positive rating action or upgrade include EBITDAR leverage sustained below 6.0x, EBITDAR fixed charge coverage ratio above 1.5x, or resolution on Chicago funding commitments and revolver maturity. The Negative Outlook could be resolved with the completion of the Twin River sale-leaseback with proceeds used to fund Chicago commitments and reduce debt, or further enhancements in liquidity without resulting in a material impact on future earnings.

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