Golden Entertainment Distributed Gaming Sale Lauded by Moody’s

Posted on: March 9, 2023, 04:17h. 

Last updated on: March 10, 2023, 02:38h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

On Monday, Golden Entertainment (NASDAQ: GDEN) said it’s selling its Montana and Nevada distributed gaming operations for $361.5 million — a move that’s drawing rave reviews from some analysts.

Count Moody’s Investors Service among that group. In a new report to clients, the credit ratings agency applauds Golden’s divestment of its gaming machine route unit to closely held J&J Ventures Gaming. That’s because the casino operator will likely use the bulk of the proceeds to shore up its balance sheet, including paring debt.

Moody’s calls the move by the Strat operator “credit positive.” But the research firm doesn’t mention potential upgrades to Golden’s “B1” rating or its “stable” outlook. The gaming company’s credit grade is several notches into junk territory.

Golden Transactions Beneficial to Balance Sheet

With its $260 million sale of the Rocky Gap Casino Resort in Flintstone, Md., approaching next quarter and the distributed gaming deal likely to be finalized by the end of this year, Golden could make significant headway in terms of firming its balance sheet throughout 2023.

While the sale of the distributed gaming business and Rocky Gap casino reduces the company’s size and increases reliance on its Nevada casinos, Golden currently has moderate leverage of around 3.5x (Moody’s adjusted), which will reduce pro forma for the proposed transactions. Golden intends to maintain its net leverage ratio below 3x,” observes Moody’s.

While Moody’s appears convinced that Golden will use proceeds from that pair of transactions to reduce leverage, other analysts speculate that the casino operator could deploy the cash in mixed fashion, using it to pare debt and repurchase shares and potentially deliver a special dividend to investors.

Last year, the company bought back 1.1 million of its own shares. Chairman and CEO Blake Sartini owns about 19% of the shares outstanding. The Las Vegas-based firm may raise further cash this year by selling the shuttered Colorado Belle in Laughlin, Nevada. But an announcement to that effect hasn’t been made.

Ins and Outs of Golden Distributed Gaming Sale

There are some important details in the sale of the distributed gaming unit, including that J&J Ventures will service Golden’s Nevada pubs and taverns following closure of the deal.

J&J will acquire Golden’s distributed gaming operations in Nevada for $213.5 million plus an estimated $34 million of purchased cash, and Golden’s distributed gaming operations in Montana for $109 million plus an estimated $5 million of purchased cash, subject to customary working capital adjustments,” added Moody’s. “In addition, Golden will enter into a five-year agreement with J&J Gaming under which the latter will support Golden’s gaming operations at its branded tavern locations in Nevada at financial terms consistent with the company’s past practice.”

The ratings agency has a “B2” grade with a “stable” outlook on J&J Ventures Gaming.