Fitch Affirms Walt Disney Family Museum's (California) Rev Bonds at 'A';
FRANKFURT/BARCELONA/LONDON -- November 21, 2012
Fitch Ratings has affirmed the 'A' rating on $56.1 million of California
Infrastructure and Economic Development Bank revenue bonds issued on behalf of
the Walt Disney Family Museum (WDFM).
The Rating Outlook is Stable.
The bonds are an absolute and unconditional obligation of the Walt and Lilly
Disney Foundation (the Disney Foundation), under a guaranty agreement with the
KEY RATING DRIVERS
RESOURCES OF THE FOUNDATION: The Disney Foundation's robust balance sheet
resources continue to provide a solid cushion relative to both the operating
expenditures and outstanding debt of the museum, for which the foundation
provides its guaranty.
IMPROVED MUSEUM ATTENDANCE: Museum attendance and operations both improved
year-to-date 2012 (fiscal year end Dec. 31) following modest attendance after
the museum's opening in 2009 that was below initial projections. However, it
is not envisioned that the museum's financial performance alone will ever be
sufficient to cover debt service on the bonds.
STRATEGIC PLAN IMPLEMENTED: The museum's engaged board of directors and
experienced management team have implemented a five-year strategic plan aimed
at increasing attendance, growing revenues, and reducing reliance on the
The strength of the Disney Foundation's balance sheet remains the primary
rating driver, although the market value of its investment portfolio has yet
to fully recover from the decline experienced during the financial markets
downturn in 2008 and 2009. The foundation's available funds (defined by Fitch
as cash and investments not permanently restricted) totaled $156.6 million as
of Dec. 31, 2011. Available funds provided solid 2.2 times (x) coverage of
total debt ($71.9 million), including the series 2008 bonds and a
non-cancellable operating lease between the museum and the Presidio Trust for
about $15 million. Available funds coverage of operations remains strong at
13.8x the foundation's fiscal 2011 operating expenses of $11.3 million (or a
still healthy 5.9x when also including the museum's operating expenditures).
Available funds improved slightly to $159.9 million as of Sept. 30, 2012
(unaudited), though remain below the level prior to the financial crisis.
As expected, the museum remains dependent on grants from the Disney Foundation
to support operations. Following initial attendance that was below projected
levels, this operating subsidy from the foundation was about $8m per year in
fiscal 2010 and 2011. In response to lower revenues, the museum's management
started to trim costs, cultivate additional philanthropic support, and
strengthen attendance-based revenues through more targeted marketing and
exhibits. These budgetary measures began to show some progress in fiscal 2012,
with attendance and revenues both slightly ahead of plan through the nine
months ended Sept. 30, 2012.
The museum's five-year strategic plan calls for doubling annual attendance to
200,000 over the next five years and reducing reliance on the foundation by
$2.8 million annually beginning in fiscal 2013. While Fitch has never expected
the museum to become entirely self-supported, the ability to reduce dependence
on the Disney Foundation will be viewed positively as it will help to preserve
the foundation's financial resource base; the underpinning of the 'A' rating
and ultimate security for the bonds.
The Disney Foundation's only revenue sources are investment income and
realized gains on investments. As was under consideration at the time of
Fitch's last review in 2010, the foundation replaced its former investment
managers during 2012 with a single manager. This decision was made in part
based on the foundation's disappointment with its investment performance and
the ability to work more closely with its new manager to make strategic
Alternative investments comprised 17.6% of the total portfolio at the end of
2011, which Fitch views as moderate and not uncommon for foundations with
like-size endowments. Despite this exposure, 2011 adjusted available funds
(adjusted to exclude alternative assets) covered a still solid 1.79x of total
debt and 11.4x of operating expenses. In addition to assets under management,
the Disney Foundation also separately dedicates a small portion of its
portfolio to a fixed-income mutual fund and stock in the Walt Disney Company.
Opened in October 2009, the museum is dedicated to the life and work of Walt
Disney and is located in three historic buildings in the Presidio of San
Francisco. The Walt Disney Family Foundation is the sole corporate member of
the museum and shares two of its three board members with the Disney
Foundation. The bylaws of both foundations require that all board members be
descendants of Walt Disney, reflecting their commitment to the museum's
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Nonprofit Institutions Rating Criteria' (June 15, 2012);
--'Revenue-Supported Rating Criteria (June 12, 2012);
--'Fitch Downgrades Walt Disney Family Museum's $58.2MM Rev Bonds to 'A';
Outlook Stable' (Dec. 1, 2010).
Applicable Criteria and Related Research:
Nonprofit Institutions Rating Criteria
Revenue-Supported Rating Criteria
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Colin Walsh, +1-212-908-0767
One State Street Plaza
New York, NY 10004
Joanne Ferrigan, +1-212-908-0723
Maura McGuigan, +1-212-908-0591
Elizabeth Fogerty, +1-212-908-0526
New York, Media Relations
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