Debt Deal Is Close To Being Done

| About: Full House (FLL)
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Full House Resorts posted a 5th sequential quarter of improved results under new management.

A key issue is the debt load, which amounts to 5x "run rate" EBITDA.

Management discussed a deal that is now completed.

The situation appears under control, with room for improvement.

CEO Lee and team, running Full House Resorts (NYSEMKT:FLL), came up with another quarter of solid results and, perhaps more importantly, a thorough and crystal clear discussion of the nuts and bolts of how they are improving the day to day through incremental improvements, ranging from upgrading properties to developing RV camps and setting up a ferry in a strategic position.

By far the most important thing to take note of from this latest earnings call is the discussion of the debt refinancing. A debt refinancing has been completed, and it takes the company's interest expenses down from ~14% to ~13% on its most expensive debt.

The result itself isn't a great improvement, but last quarter, I was worried about Full House Resorts' ability to get refinancing and relieved the company would be able to roll it over at the 14% rate.

Pro forma, the Billy Bronco acquisition of Full House will have something like $100 million in debt. The interest rate on $45 million of debt is a reasonable LIBOR + 3.75%, but the other $55 million will run them something like 13.25%.

Management is gunning for a future EBITDA of $25 million after the acquisition and improvements (TTM without currently $10 million), and $9.5 million in interest expenses do a lot of damage to that number before it gets to earnings.

The team did something very crafty, though, and negotiated a clause in the expensive debt that allows them to take it out whenever they want before it matures, but they will have to take it out at 103%, 102% or 101% of par, depending on how soon they want to get rid of it. With this clause, it's still possible for a bigger player with a better capital structure to acquire Full House Resorts and instantly improve the company by taking out the debt and refinancing at much better rates.

It will also allow the team to make a move to squash the 13.25% debt when they succeed in getting EBITDA to ~$25 million. At a Debt/EBITDA ratio of 4x, the company would be able to secure much better rates than it is able to now at around 5x (run rate).

I wouldn't be surprised if we would see the company get taken out or the debt refinanced within two years. I am looking forward to listening to future earnings calls to discover what stunts Lee and his team are pulling to further improve the company.

Disclosure: I am/we are long FLL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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