Bally's going-concern warning pressures casino construction lenders

Bally's Corp. says it may not survive its debt load, a warning that now hangs over two casino construction jobs: one in the Bronx, one along the Chicago River. Shares fell more than 27 percent Monday morning after the operator disclosed 'substantial doubt' about its ability to continue operating, Bisnow reports. For real estate lenders, the filing shows how little covenant protection the loans have.

The doubt comes from a waiver its lenders granted in May, Bally's told investors in a Friday SEC filing. The lenders temporarily suspended the company's debt-to-cash-flow covenants. In exchange, the Rhode Island-based operator agreed to hold a set amount of cash and meet leverage-ratio mandates by the time the waiver lapses in May 2027. Bally's says it may not be able to do both, and the result is a push to raise capital.

That push could include asset sales and borrowing against its newest project in New York City. Last month, Bally's signed a term sheet to finance the Bronx development, a $4 billion undertaking. The project won a downstate New York casino license in December. Three such licenses were awarded. The term sheet is not binding. Bally's told Bloomberg it expects to raise more than $500 million for the project, on top of $800 million already invested. That is an expectation, not a commitment.

The Chicago side of the balance sheet is more demanding. Bally's is contractually obliged to the city to build its casino complex along the Chicago River. It has spent $940 million so far, and roughly $400 million of construction spending remains under the agreement, Bisnow reports. The company expects the final bill to exceed that. Earlier this month, construction paused after Chicago legalized video gambling terminals. Bally's says that move breaches the 2022 agreement, which included a commitment not to expand gaming.

Since September 2023, the company has run a temporary Chicago casino; the permanent location is expected to open next year. Next month, a payment comes due to the Illinois Gaming Board. Bally's agreed to make it three years after operations began at either the temporary or the permanent facility. That payment lands on top of the remaining construction spend and the cash requirements of the loan waiver.

The Chicago pause adds a political dimension lenders rarely price into construction loans. Bally's argues the city's legalization of video gambling terminals breaches the 2022 development agreement, which included a pledge not to expand gaming. Whether the dispute ends in court or in renegotiation will determine if the remaining construction spend gets drawn down, and whether the city's permanent casino opens at all.

A company spokesperson called the going-concern disclosure a 'forward-looking technical accounting analysis' that counts only funding secured unconditionally as of the assessment date. That is a fair description of the accounting. It also clarifies what is missing: the term sheet and the asset-sale proceeds are not yet in hand. The statement added that the filing has no impact on the Chicago project and that the company remains well situated.

For real estate credit, the going-concern language is a technical requirement. What matters is what it shows about the sponsor's liquidity when construction runs over budget and a municipality changes the rules mid-build. Bally's already had one lender concession in the May waiver. Now the company says even the waiver terms are in doubt. That suggests the original covenant package was thin and the project-level cash flows are not covering the debt service.

Gaming resort credit is behaving differently from the rest of hospitality, where capital is still chasing assets at record prices. Ryman Hospitality's $1.4 billion purchase of Grande Lakes Orlando was the largest non-gaming U.S. resort sale on record, according to IPE Real Assets. Bally's warning suggests that building city casinos carries a second risk on top of construction: the sponsor's own balance sheet.

For construction lenders, this is a case study in secondary risk. The collateral is a partially built casino; the primary risk is the sponsor's balance sheet. When a sponsor's other projects drain liquidity, the construction loan's covenant headroom vanishes. When a city legalizes competing gaming products, the revenue case shifts. Lenders to gaming resorts will be watching whether Bally's can turn the Bronx term sheet into a binding commitment before the Illinois payment comes due next month.