Boyd Gaming Announces Acquisition in Unattractive Mississippi Market

Boyd Gaming BYD announced that is acquiring the IP Casino Resort Spa in Biloxi, Miss., for $278 million. Management justified the acquisition under the rationale that it will diversify the company's geographic reach (management also indicated that it is seeking other acquisition targets). We view the acquisition as a poor move by Boyd management, as the Mississippi market is saturated and offers weak returns on invested capital, with more than a dozen casinos and the potential for more casino licenses to be issued in the state. In addition, Boyd, which has an overleveraged balance sheet (total debt/EBITDA at over 8 times), will use debt to finance the acquisition. We continue to think that there is risk that Boyd, in the event of the recession, will default on its debt obligations.