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Boyd Gaming Is About to Go on a Shopping Spree

By Rich Duprey – Jun 25, 2018 at 11:31AM

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The regional casino operator is making sure it has plenty of credit available to make acquisitions.

With legalized sports gambling in the U.S. about to become a reality in many states, regional casino operator Boyd Gaming (BYD 0.77%) is gearing up to go on a spending spree. It just increased a debt offering from $500 million to $700 million and says a portion of the proceeds will be used for acquisitions.

Boyd hasn't exactly been reticent when it comes to making acquisitions, and today owns or operates 24 gaming properties in seven states. Last December, it entered into an agreement with Penn National Gaming (PENN 1.16%) to buy four properties after Penn closes on its acquisition of Pinnacle Entertainment, and then two days later agreed to acquire Valley Forge Casino Resort in King of Prussia, Pennsylvania. Earlier this month it completed its acquisition of Lattner Entertainment, a bar and tavern gaming operator with some 220 locations across Illinois.

Boyd is also well established in the sports wagering market, having one of the largest sports books in Nevada, where betting on sports has been legal for decades. Boyd Gaming stands to be one of the big winners from the Supreme Court ruling because of its extensive experience and broad network of regional casinos that will bring sports gambling closer to more people.

Baseball player swinging bat

Image source: Getty Images.

Making a big bet on sports wagering

By preparing to buy up more properties, Boyd is ensuring it has as many markets covered as possible, with CEO Keith Smith saying the casino operator was "fully prepared to take advantage of" sports gambling as it rolls out across the country.

It's estimated legalized sports betting could be a $60 billion or $70 billion market when fully implemented, though how much individual casino operators actually benefit from the development remains to be seen. Sports book win in Nevada, or the amount the sports books kept for the year, totaled just over 2% of the $248 million wagered, but the American Gaming Association estimates that $150 billion is wagered illegally on sports in the U.S. each year.

Online gambling has certainly lifted many markets, with some locations like Atlantic City being able to stay afloat because of it. Casino operators are hoping a similar impact is felt with betting on sporting events.

Boyd's offering priced $700 million in senior notes maturing on Aug. 15, 2026, bearing an interest rate of 6% annually. The offering is expected to close on June 25.

The casino operator said it expects to receive approximately $689 million in net proceeds that it intends to use for working capital and general corporate purposes, which includes acquisitions, reducing debt, and expansion. However, it is also planning to pursue a $230 million increase in its revolving credit facility later this year.

At the end of the first quarter, Boyd reported it had over $2.9 billion in long-term debt but a little over $200 million in cash, equivalents, and restricted cash.

An appetite for acquisitions

The ratings agencies may think Boyd Gaming is spreading itself a little thin, though. After Boyd announced its five acquisitions last year, Moody's revised its ratings outlook to stable from positive because it believed Boyd would "no longer be able to achieve and maintain debt/EBITDA at/below the 5.25 times upgrade target within a time frame necessary to achieve a higher rating."

Debt/EBITDA (DE), or earnings before interest, taxes, depreciation, and amortization, is a measure ratings agencies use to determine a company's ability to pay off its debt. A high DE ratio suggests a company may have difficulty servicing its debt, which often leads agencies to lower a company's credit rating.

Prior to the acquisitions, Boyd's DE ratio was 5.6 times, while Moody's expects it to be 5.8 times afterward, which it says is "still comfortably below" the level that would trigger a downgrade, or 6 times.

In fact, Moody's saw Boyd's acquisitions as a positive development long-term, and it sees the casino operator paying down debt by using its free cash flow.

The current debt offering was assigned a B3 rating, within the range of Boyd's existing debt, and the stable outlook did not change even with the revolver increase Boyd intends to seek.

Because Boyd Gaming continues to geographically diversify its operations, particularly as sports gambling opens up new potential streams of revenue, the gaming operator is likely eyeing outlets that it's not currently in, and that could be a bet that pays off big.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of Moody's. The Motley Fool has a disclosure policy.

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