Unfinished symphony: Bally’s added an unusual warning to its Q2 10-Q SEC filing, concluding that its incomplete financing plans did not alleviate “substantial doubt” about its ability to continue as a going concern. This does not mean Bally’s is about to run out of money.

• But it does mean the company cannot currently demonstrate that it will satisfy the conditions attached to its revolving credit facility over the next 12 months.
• Lenders have waived compliance with Bally’s consolidated net-leverage covenant until shortly before the delivery of its March 2027 compliance certificate.
• That waiver depends on Bally’s maintaining minimum liquidity, while its revolving commitments are scheduled to fall in October.

Once more unto the breach: Excluding proposed financing, Bally’s forecasts it may breach the liquidity requirement and, once reinstated, its leverage covenant. Its proposed remedies include asset monetization, an equity sale and new debt.

• Bally’s signed a non-binding term sheet in July for a loan supporting further development of the Bronx casino and general corporate purposes.
• It also entered a letter of intent with a potential equity investor in August. Neither arrangement has been finalized.

Hurty words: Analysts disagree over whether the warning represents a temporary financing mismatch or something more fundamental. CBRE termed the going concern language “overblown,” estimating the scheduled reduction in revolver commitments from $519m to $319m would leave Bally’s only $200m short of its liquidity requirement.

• But the team expects the Bronx financing to close before the year-end test.
• Stifel also described the financing plan as credible, while acknowledging continuing market concern over Bally’s ability to raise the required capital.
• Truist was less relaxed. It said the language was “not a good look and is rarely seen across our coverage.”
• The Citizens team said they do not view the situation as dire, but said Bally’s cannot complete all its projects at its current leverage without an asset sale or development partner.

Jenga: Lease-adjusted leverage ended Q2 at 8.4x, while Bally’s is simultaneously completing Chicago, financing the $4bn Bronx casino and considering the future of Las Vegas. To some, it is the piling up of commitments that creates the danger.

• The parts that make up the Bally’s business “on their own are solid enough,” says one analyst source who opted for anonymity. “But if you load all these debt elements together, it can look like it’s toppling.”
• “They have built an acca on outside chances,” the source added. “They are rolling the dice multiple times, and it only takes one of them to go horribly wrong.”

R U UK honey? Then there is Bally’s Intralot which also released Q2 numbers this week which showed that when it comes to its UK operations, all is not going to plan. The increase in RGD from 21% to 40% on April 1 reduced Bally’s Intralot adj. EBITDA by approximately €34m in Q2.

• UK revenue still increased 11.6% in constant currency while growth and operating cost reductions mitigated close to 65% of the tax impact.
• Nevertheless, Bally’s Intralot B2C adj. EBITDA fell 14% YoY to $64.7m and missed consensus by 24%.

Tail off: CEO Robeson Reeves’ thesis had been that smaller UK operators would withdraw following the tax increase, allowing Bally’s brands to capture displaced customers. But that consolidation is yet to occur.

• “They had modeled immediate market share gains,” says the analyst who suggests this was a touch naïve.
• “They would need the long tail to go pop and pop quickly, and with all those customers moving to Bally’s,” they added.
• Meanwhile, the analysts also failed to incorporate a known tax increase adequately, producing what the source said was a “completely forecastable and predictable consensus miss.”

The same boat: Bally’s Intralot shares some of the debt strain with the parent, carrying ~€1.62bn of the debt load vs. ~$2.7bn at the parent.

• It should be noted that Bally’s Corporation’s covenant problems have no implications under Bally’s Intralot’s debt documents, while Bally’s Intralot does not guarantee the parent’s debt.
• But Bally’s owns 58% of Bally’s Intralot, and Robeson Reeves leads both companies.
• Strategically, Bally’s Intralot remains integral to the overall collection of projects and financial commitments.

Feeling ‘bout half past dead: One sector consultant source who also spoke on condition of anonymity believes the pressure placed on Bally’s Intralot is already substantial. “Bally’s Intralot is carrying the weight,” they said.

• “The UK-focused business is the growth driver and there is an awful lot of pressure on that business to deliver,” they said.
• The consultant believes assets may ultimately need to be sold and described the disclosure as a potential early warning: “Maybe the going concern language in the 10-Q is the canary,” they said.

Going round in circles: The proposed acquisition of Evoke adds a further layer of complexity. Bally’s Intralot is taking on a UK business already attempting its own operational recovery just as the expected benefits from post-tax market consolidation have disappointed.

• For the analyst, that is potentially more concerning than the debt itself. “That company has manufactured its own crisis and its results are still poor.”
• “Why would you think you can turn it around when you know nothing about the issues?” they added. “How on earth does an operations management team try to sort Evoke out?”

Lightbulb: Bronx financing could remove the immediate going-concern warning and prove the more reassuring analysts correct. But it would only clear one leg of the acca. Bally’s must still deliver Chicago, decide what to do in Las Vegas, mitigate the UK tax increase and demonstrate it can improve Evoke.

• All this while carrying total leverage of $4.52bn that leaves precious little room for another miss.
• Independent shareholders are already bailing; the shares are down over 30% this week despite major shareholder Standard General, owned by Bally’s chair Soo Kim, controlling nearly 75% of the float.
• The message seems clear: they are leaving Kim to be the one to turn out the lights.

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