Disney Credit Downgraded

[Panthius]

Fitch downgrades Disney debt

By Russ Britt, CBS.MarketWatch.com
Last Update: 12:01 PM ET Aug 26, 2002

CHICAGO (CBS.MW) - Fitch Investor's Service downgraded Walt Disney Co.'s debt rating Monday, citing the company's heavy debt and uncertain prospects.

Fitch cut Disney's rating from "A-" to "BBB+" on $14 billion of debt. The rating is a few steps away from junk status.

Citing Disney's $5.2 billion acquisition of the Fox Family Channel in October, Fitch said the company experienced declining performance in its businesses following the purchase. Those businesses, particularly its theme parks and the ABC Network, have yet to show signs of rebounding.

"The issue for us is really what kind of credit metrics the company is going to be showing for some period of time," said Albert Turner, a Fitch analyst.

In a statement, Disney said: "We have worked to reduce sharply our debt levels this year, and we are comfortable with our ability to handle our obligations, and we see this as the result of short-term business conditions."

Fitch also put a negative rating on its outlook for Disney though management was lauded for its commitment to boosting the company's credit profile.

Disney is cutting capital expenditures from $1.8 billion to $1.25 billion, it eliminated $800 million in debt through sales of assets and is keeping costs "under tight control," as Fitch officials put it.

"I think they're credible plans," Turner said. "But as with anything the company undertakes, there are execution issues."

Disney's ABC Network currently is fourth among the four major networks and its theme parks took a severe body blow following the Sept. 11 terrorist attacks.

Further, Fitch says Disney's theatrical releases have been "disappointing" and the company has not reduced its exposure in that realm.

Fitch also cited Disney's troubles in its cornerstone animated feature film business, which has not been as successful in recent years as in the past. And Disney may find the competition more intense for that product as other studios start to release more animated films.

Shares of Disney (DIS: news) 27 cents to $16.56 in early trading.

What does this mean for Disney? I will admit to not knowing how this will effect The Disney Company, but I do know this isn't a good thing. I also remember not too long ago Disney's credit rating being lowered, but I do not believe it was by Fitch investor's Service.

Panthius

 

[Panthius]

Disney ties rating cut to "short-term" factors

Monday August 26, 6:47 PM EDT

LOS ANGELES, Aug 26 (Reuters) - Entertainment giant Walt Disney Co. (DIS) on Monday called a downgrade in its senior unsecured credit rating by Fitch Ratings the result of "short-term business conditions," and said it is confident of its general financial health.

Earlier in the day, Fitch lowered its senior unsecured debt rating on Disney to "BBB-plus" from "A-minus," moving the debt rating to low investment grade from medium investment grade.

Fitch said the lowered rating "reflects persistent weakness in key measures of cash-flow leverage" as a result of Disney's $5.2 billion purchase of the Fox Family Channel last year.

Fitch also cited ongoing weakness at Disney's ABC television network, as well as weakness at Disney theme parks due to a broader U.S. travel slowdown since last year's Sept. 11 air attacks.

Responding to the downgrade, Burbank, Calif.-based Disney said it has worked this year to "reduce sharply" its debt levels.

As a result, it said, management is comfortable with the company's ability to handle its debt obligations and is "confident in the overall strength" of its balance sheet.

"We see this (the Fitch action) as the result of short-term business conditions," Disney said in a statement. "We remain optimistic about the long-term prospects for The Walt Disney Co. as we believe it's one of the most-recognized global brands, has solid fundamentals and a tremendous, and growing, set of assets."

I guess we will wait and see if this is upgraded after the short term passes. I am also just wondering if a credit rating takes into consideration long term prospects? I would assume that the debt that Disney has is all pretty much long term debt as it is, so I am curious what the Disney executives definition of short term business conditions is.

Panthius

 

[Luv2Roam]

Hasn't Disney already said to expect a bleak 4th quarter? That will really hurt them. To save their own skins now stockholders/board should be getting some major changes set up.