Fitch Rates Disney's 364-Day Revolver 'A'; Outlook Stable
CHICAGO -- March 21, 2013
Fitch Ratings has assigned an 'A' rating to The Walt Disney Company's (Disney)
new $1.5 billion 364-day credit agreement. The Rating Outlook is Stable.
Approximately $17.5 billion of debt was outstanding as of Dec. 29, 2012. A
complete list of ratings is provided at the end of this release.
The new credit facility will support the company's expanded commercial paper
program and other general corporate purposes. The new revolver will expire on
March 14, 2014 and includes an option to extend the maturity date one year,
and will rank pari passi with all existing debt. The terms and conditions of
the new facility are substantially similar to those contained in the company's
existing revolving credit facilities, including the maintenance of an interest
coverage ratio greater than 3x.
Disney's committed credit facilities, which now total $6 billion after
considering the new revolver, support the company's commercial paper program
and strong liquidity position. The company's existing two revolving credit
facilities total $2.25 billion each; the first matures in February 2015 and
the second in June 2017. There were no amounts outstanding under these credit
facilities as of Dec. 31, 2012. In addition to the committed credit
facilities, liquidity is derived from $3.2 billion of cash ($320 million of
which was held at the International Theme Parks), and expected free cash flow
KEY RATING DRIVERS:
The ratings and Outlook reflect Disney's ample financial flexibility,
underpinned by strong free cash flow (FCF) generation that Fitch expects to
exceed $3.5 billion beginning fiscal 2013, and total leverage around 1.5x.
Ratings incorporate Fitch's expectations that the company's share repurchases
and M&A activity will likely exceed FCF generation given strong liquidity and
current credit profile. The company's acquisition of Lucasfilm Limited for $2
billion in cash and $2 billion of equity, along with the contemplated equity
repurchase over the subsequent 24 months, is within Fitch's expectations for
the company's financial policy and within the current ratings.
The company's pro forma maturity schedule over the next several years
(approximately $1 billion of maturities through calendar year end (CYE) 2013
(excluding CP balance), approximately $1.55 billion of maturities in CY 2014,
and $1.5 billion in CY 2015) will be easily manageable with FCF and access to
the capital markets. Fitch does not expect debt reduction going forward.
The ratings incorporate the cyclicality of Disney's businesses, particularly
Parks & Resorts (31% of revenue), Consumer Products (8%), and the advertising
portion of Broadcast and Cable Networks (18%). These businesses have exhibited
a degree of resiliency in the recent sluggish macroeconomic backdrop but
remain at risk in the event of a more severe economic downturn. Should
macroeconomic volatility return, Fitch expects these cyclical businesses to be
under renewed pressure but that the company's credit and financial profile
will likely remain within current ratings. The ratings incorporate Fitch's
expectation that the Studio Entertainment business, similar to that of its
peers, will remain volatile and low margin, given the hit-driven nature. The
decline of DVD sales, which is the window in which many films become
profitable, is becoming less of a concern amid the growth of higher-margin
digital distribution, and should be accommodated within current ratings.
Total debt at Dec. 29, 2012 was $17.5 billion and consisted of:
--$3 billion of CP;
--$12.3 billion of notes and debentures, with maturities ranging from December
--$269 million of debt related to Hong Kong Disneyland (Disneyland Paris debt
is no longer outstanding after Disney refinanced it with intercompany debt in
September 2012), which is non-recourse back to Disney but which Fitch
consolidates under the assumption that the company would back the loan
--Approximately $1.3 billion of foreign currency-denominated debt, including
approximately $300 million of debt assumed in the February 2012 acquisition of
UTV, which was refinanced in September 2012.
--$524 million of other debt.
Fitch notes the company's pension was 70% funded at Sept. 29, 2012 (the last
reported date). While annual pension funding obligations of several hundred
million dollars should continue over the next few years, they will be more
than covered by FCF.
Positive: Upward momentum to the ratings is unlikely over the intermediate
term. However, a compelling rationale for, and an explicit public commitment
to more conservative leverage thresholds could result in upgrade
Negative: Rating pressure is less likely to be driven by operating performance
than by discretionary actions (debt-funded acquisitions) on the part of
Fitch currently rates Disney as follows:
The Walt Disney Company
--Issuer Default Rating (IDR) 'A';
--Senior unsecured debt 'A';
--Short-term IDR 'F1';
--Commercial paper 'F1'.
--Senior unsecured debt 'A'.
Disney Enterprises, Inc.
--Senior unsecured debt 'A'.
Fitch links the IDRs of the issuing entities (predominantly based on the lack
of any material restrictions on movements of cash between the entities) and
treats the unsecured debt of the entire company as pari passu. Fitch
recognizes the absence of upstream guarantees from the operating assets and
that debt at Disney Enterprises is structurally senior to the holding company
debt. However, Fitch does not distinguish the issue ratings at the two
entities due to the strong 'A' category investment-grade IDR, Fitch's
expectations of stable financial policies, and the anticipation that future
debt will be issued by Walt Disney Company. Fitch would consider
distinguishing between the ratings if there appeared to be heightened risk of
the company's IDR falling to non-investment grade (where Disney Enterprises'
enhanced recovery prospects would be more relevant).
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 & Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 9, 2012);
--'Parent and Subsidiary Ratings Linkage' (Aug. 8, 2012).
Applicable Criteria and Related Research
Corporate Rating Methodology
Short-Term Ratings Criteria for Non-Financial Corporates
Parent and Subsidiary Rating Linkage
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David Peterson, +1 312-368-3177
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Rolando Larrondo, +1 212-908-0223
Mike Simonton, CFA, +1 312-368-3138
Brian Bertsch, +1 212-908-0549
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