Shares of Eldorado Resorts (ERI) jumped 11.5% in September, according to data provided by S&P Global Market Intelligence, after the company was upgraded by a rating agency and announced a well-priced debt offering. Since debt fuels the gaming industry, both moves are positive developments for investors.
The upgrade came from Moody's, which increased its rating on the company's senior secured bank loan from Ba3 to Ba2 in response to the latest debt offering. That offering was $500 million of senior unsecured notes due 2025, which hold an interest rate of 6% and were sold to investors for 105.5% of their face value. The result is an implied interest rate of about 5.7%.
Debt costs are an important factor for any gaming company, so an upgrade or strong debt offering can give some operational stability long term. The fact that the latest offering will be used to pay down $78 million of a revolving credit facility will help lower risk as well.
Financing debt is a normal part of Eldorado's business, but the scale and interest rate it was able to get are positives for the company and that's what traders are seeing right now. The regional gaming market has stabilized some and a reasonably strong economy is helping drive cash flow from the gaming industry. Armed with $500 million of low-cost debt, shareholders may reap some of the rewards from future growth.