February 04, 2014 - 3:19pm EST by
2014 2015
Price: 10.00 EPS -$0.34 $0.15
Shares Out. (in M): 108 P/E NM 66.6x
Market Cap (in $M): 1,084 P/FCF 7.4x 6.1x
Net Debt (in $M): 3,452 EBIT 193 259
TEV (in $M): 4,537 TEV/EBIT 23.5x 17.5x

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  • Gambling
  • M&A Catalyst
  • NOLs


Company Description


Boyd Gaming owns and operates 6 Las Vegas Local Casinos, 3 Casinos in Downtown Las Vegas, 12 Casinos throughout the Midwest and is a 50% owner of the Borgata Casino in Atlantic City


Capital Structure & Relevant Financial Metrics


Capital Structure






$600 Million Boyd Revolver (L+300)





Boyd Term A (L+300)






Boyd Term B (L+300; 100 Floor)





$50 Million Peninsula Revolver (L+400)





Peninsula Term B (L+325; 100 Floor)





Total Senior Secured Debt







Peninsula Senior Bonds






Boyd Senior Bonds






Boyd Senior Bonds






Holdco Note & Other






Total Debt








  Net Debt










Equity Cap Class A






Total Equity Value







  Total Enterprise Value









Wholly Owned Assets



E. 2013

E. 2014

E. 2015

























Interest Expense






Cash Taxes






























Price / FCF












Recent History & Current Situation

  • Due to the large investment in the Echelon (prior to its construction delay in 2008, it was going to be a major Las Vegas strip casino) and the financial crisis of 2008, BYD was saddled with a large amount of debt relative to its cash flow.  Currently they maintain a 8.0x Debt to EBITDA ratio at their wholly owned casino’s
  • In March 2010, BYD took effective control on the Borgata Hotel in Atlantic City and therefore started to consolidate its financials
    -    Borgata is highly leveraged, with very little equity value and is Bankruptcy remote from Boyd
    -    Boyd, owns 50% of the economics in the Borgata
    -    Atlantic City has been hit very hard.  While the Borgata is the best performing hotel in Atlantic City, the EBITDA at the Borgata has decreased from $169 million in 2010 to an estimated $116 million in 2013
    -    The Borgata’s performance, now consolidated, has optically hurt Boyd’s overall financials
  • In November 2012, BYD acquired Peninsula gaming increasing their “Wholly Owned Casino” revenues” by approximately 23% and EBITDA by 29%
    -    Peninsula’s Casino’s are situated in places with better competitive dynamics and therefore are able to maintain higher EBITDA margins
  • On March 4 2013, BYD completed the sale of its Echelon property for $350 million after writing down the value of the asset by approximately $1 billion in the 4th quarter of 2013.  As a result, Boyd’s NOL increased
  • In November 2013, New Jersey started to allow online gaming.  Thus far, the Borgata’s web site (in partnership with MGM & PartyPoker) has been the most successful in the state of New Jersey


Investment Thesis

  • Boyd is a misunderstood company, that trades at a very cheap relative to free cash flow, and has multiple “free options” that can greatly increase its value including a “free option” on the success of online gaming
  • Due to its recent merger with Peninsula and its consolidation of the Borgata hotel, Boyd is a difficult company to analyze
    -    Since the merger with Peninsula was done in November of last year, LTM numbers don’t include a full 4th quarter of Peninsula
    -    While the top line has been soft and profitability has been low, the cash flow generation of Boyd’s wholly owned assets are very strong.
  • Large D&A (much larger in fact than its CAPEX expense), mostly due amortization related to its merger with Peninsula, has caused Net Income to materially lag free cash flow
  • 2013 Estimated free cash flow is expected to be 6.7% of revenues while 2014 is expected to grow to 7.9%
  • Boyd has a very large refinancing opportunity.  Due to its merger with Peninsula, Boyd has a convoluted debt structure with two credit facilities and some high coupon legacy bonds.  A refinancing of the credit facilities into one facility and a refinancing of two bond issues that are callable this year, should create $27.5 million of additional free cash flow for Boyd.
    -    Expect Boyd to conduct a large refinancing when the 8.375% bonds become callable in August
    -    Pro Forma for the refinancing, FCF would grow to 8.7% of Revenues
  • While Boyd pays very little tax due to its low Net Income, even when Amortization drops over the next two years this will not materially increase their Income Tax due to the $1 billion+ NOL which will shield earnings from taxes over the next few years
  • The combination of its ownership stake in the Borgata, and having casino’s in 8 states, and its partnership with Bwin.Party Digital Entertainment (aka PartyPoker) makes Boyd one of the best investments in online gaming.
    -    Since there is no near term legislation for federal online gaming, all online gaming will be done on a state-by-state basis
    -    Boyd operates in 8 states, with a total population of over 44 million people
    -    Online gaming in New Jersey just launched in November and Boyd’s market share thus far has been 45%
    -    Partnership with PartyPoker allows Boyd to license PartyPoker’s software (which has an excellent user interface) and gives Boyd the right to purchase 10% of Bwin.Party’s ownership of PartyPokers websites in the states in which Boyd operates
    -    Optionality related to Boyd partnering with other casino’s in other states, most specifically with a tribe in California, which would add further scale to its online offering
  • While the decline of gaming revenues in New Jersey has made their stake in the Borgata to be worth very little, an upcoming refund from the state of New Jersey, refinancing opportunities, closing of other underperforming casinos in Atlantic City and online gaming make their ownership stake very attractive
  • Performance of wholly owned properties has been stable
    -    Strength in the Las Vegas Locals & Downtown markets has offset the weakness in the Midwest and South.  The Las Vegas market is expected to continue to show strength in 2014 with the recovery in housing and in the positive momentum in visitation & conventions
    -    Additionally, with the sustainable cost cutting measures implemented in Las Vegas in 2012 & 2013, revenue growth at those properties will increase margins
  • M&A
    -    Boyd is considering selling some assets in the Midwest and South - With PENN & GLPI (the new Casino REIT) looking for assets, there is a possibility that Boyd can sell some assets at an attractive price and use proceeds to pay down debt
    -    Boyd is also open to tuck-in acquisitions.  They really are only focused on purchasing properties that have limited competition (like the Kansas City Star)



  • Boyd’s wholly owned Casino’s are expected to generate $178 million of Free cash flow in 2014 and pro-forma for refinancing’s, the FCF would be $196 million
    -    The average of other casino’s trade at 9x E. 2014 FCF, which would equal $14.89 a share assuming no refinancing and $16.39 a share assuming a refinancing
  • Assuming a 9.0x FCF multiple for The Borgata (or 7.5x EBITDA) would equal $86.7 million of equity value (or $0.80 a share) to Boyd
  • Together – this values Boyd’s core operations between $15.69 and $17.19 a share
  • Additional upside is available through:
    -    Online Gaming: It is difficult to value the online gaming business at this point because of the small revenues and lack of clarity regarding margins.  However, when looking at the valuations given to the online assets of CACQ, Boyd’s online gaming should carry significant value and offer investors tremendous upside for FREE at current levels.  Morgan Stanley estimates the value between $1 and $10 a share to Boyd
    -    Boyd has over $1 billion of NOL’s, which it should start using in the next few years
    -    Tax refund close to $50 million to the Borgata, which will used to pay down debt increasing Boyd’s value of the Borgata by $25 million or $0.23 a share
    -    August refinancing of Borgata bonds which should save the Borgata $8 million a year in interest expense



Why Does This Opportunity Exist?


  • Confusion caused by the full consolidation of Borgata and the lack of full year consolidated financials from Peninsula
  • Disconnect between free cash flow and earnings.
    -    Earnings are less and expected to be less than FCF.  Much of this is due to amortization associated with the purchase of Peninsula related to the value of their customer lists
  • Investors focus on EBITDA metrics and not the more important actual Free Cash Flow metrics
    -    Boyd is currently trading at 9.6x wholly owned EBITDA or 8.6x when including their proportional ownership of Borgata EBITDA.  These metrics make Boyd look “fully valued”.  However, now that Boyd can easily support its debt load (and has pushed out most maturities until after 2018), free cash flow to the equity is more relevant
  • High leverage scares many investors and unfamiliarity with the refinancing opportunity
  • Recent weakness in the Midwest & South which makes up 39% of wholly owned revenues and 26% of wholly owned EBITDA



  • Continued weakness in the Midwest and South and further deterioration of value in Atlantic City
  • Reversal of positive trends in Las Vegas
  • Failure to scale online gaming
  • Weakening of the credit markets, thereby hurting their refinancing opportunity


I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


  • Borgata Tax refund - expected in May 2014
  • Refinancing of Peninsula credit facility and senior bonds – expected in August 2014
  • Further progress of online gaming
    -    Borgata reports monthly numbers
    -    Legislation legalizing online gaming in other states – California is expected soon and Illinois later in 2014
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