Bally’s Could Have Difficulty Adding More Cash to Star, Says Consulting Firm

• Firm warns Bally’s debt, US casino commitments could crimp cash allocated to Star
• Consultant still supports Bally’s takeover of Australian gaming company

Bally’s large debt burden and its commitments to various US casino projects could make it difficult for the company to add more cash to Star Entertainment beyond the $195 million takeover price — a portion of which is being funded by another investor.

That’s according to investing consultancy Grant Samuel & Associates Pty Ltd., an independent advisory firm providing opinion on Bally’s proposed takeover of Star. While the consulting outfit expressed reservations about Bally’s $3 billion in outstanding liabilities, it pointed out that just $20 million of that sum matures in each of the next three years before $1.8 billion comes due in 2028. Grant Samuel recommended to Star investors that the company is better off accepting Bally’s offer than rejecting it.

The sheer amount of debt it carries raises a question as to whether it has sufficient financial firepower to participate in any significant follow on capital injections if that is required by The Star,” said the consultancy by way of a Star filing with the Australian Securities Exchange (ASX).

Some analysts have previously speculated that Bally’s and investor Bruce Mathieson may need to pony up more capital for Star beyond the initial purchase price, noting that investors in the US may be concerned about Bally’s using restricted cash flow to fund the Australian transaction. Star is cash flow negative and its cash burn rate indicates the company was on death’s doorstep before Bally’s and Mathieson — Star’s biggest shareholder — came swooping in.

Chicago, Las Vegas Could Demand Bally’s Cash

Bally’s is currently building a $1.7 billion casino hotel in Chicago — its most expensive project to date — and capital will be required in the future when a decision is made regarding the fate of the former site of Tropicana Las Vegas.

Grant Samuel noted that in most years, Bally’s earnings before interest, taxes, depreciation, and amortization (EBITDA) would be enough to support Star’s cash needs, but that’s likely not the case at the moment due to the buyer’s commitments in Chicago and Las Vegas. The consulting firm didn’t even mention the possibility of a New York license.

Grant Samuel further observed that Bally’s “carries a significant level of gearing (which, at around 80%, is much higher than nearly every other listed casino operator).”

Other Concerns About Bally’s/Star Deal

The investment consultancy also highlighted potential operational risks for Bally’s in Australia because it hasn’t done business there in the past. In addition, Star is facing heavy regulatory scrutiny in the country and Bally’s domestic casinos aren’t comparable in scale to Star’s Aussie properties.

In the US, the bulk of Bally’s gaming venues are in smaller regional markets whereas Star’s casino hotels are in large metropolitan areas.

“Bally’s has no prior experience in the casino industry in Australia. While the US casino industry is also heavily regulated, the nature of that regulation is not necessarily the same as in Australia,” concludes Grant Samuel. “There are also important cultural, demographic, and other differences between the markets.”