Boyd Gaming Tumbles After Raising $500 Million Shoring up Cash Position

Boyd Gaming (NYSE:BYD) is bolstering its balance sheet, but investors aren’t enthusiastic about the news. The regional operator’s stock is lower by seven percent Wednesday after the company said it sold $500 million worth of notes in a private placement.

The Orleans operator sold $500 million in senior notes maturing in 2025. Las Vegas-based Boyd operates 29 gaming properties in 10 states.

The company intends to use the proceeds from the offering for general corporate purposes, including working capital, and to pay fees and expenses related to this offering,” according to a statement.

Boyd’s note sale is the latest in a series of similar moves permeating the gaming industry, as operators look to raise cash – even it means taking on more debt – in the wake of the coronavirus. It’s also another signal that market participants have some appetite for gaming bonds and notes and that capital is available to operators – for a price.

Why Boyd Stock Is Falling

In the COVID-19 climate, capital raises by gaming companies are usually applauded, though not always met with open arms by investors in terms of willingness to push stock prices higher, as highlighted by Boyd’s Wednesday decline.

Specific to Boyd, investors could be fretting about the Sam’s Town operator taking on more debt with the $500 million note sale. At the end of the first quarter, the company had $4.4 billion in liabilities against $831 million in cash. While that liquidity position is set to approach or top $1.2 billion with news of the note sale, the bulk of it is derived from capital raises or drawing on credit revolvers, not generated via free cash flow.

How the Ratings Could Look

Ratings agencies haven’t yet chimed in on Boyd’s private placement, and there’s no guarantee that will happen. But the company’s overall credit mark is in junk territory.

Citing concerns about the COVID-19 shutdown, Moody’s Investors Service lowered its grade on Boyd in late March to “B2” from “B1” with a negative outlook.

“The downgrade of Boyd’s corporate family rating (CFR) is in response to the disruption in casino visitation resulting from efforts to contain the spread of the coronavirus including recommendations from federal, state, and local governments to avoid gatherings and avoid non-essential travel,” said the ratings agency. “These efforts include mandates to close casinos on a temporary basis. The downgrade also reflects the negative effect on consumer income and wealth stemming from job losses and asset price declines, which will diminish discretionary resources to spend at casinos once this crisis subsides.”