Is Disney Headed For The Euro Trash Heap?

From the moment Walt Disney Co. began planning Euro Disneyland in the mid-1980s, doubters predicted a blas Europe would wipe the smile off Mickey's face. They were right. But no one expected such a flop that Disney might close the $4 billion theme park near Paris. With the park in deep financial difficulty, that's becoming a possibility. Even in the more likely event that the park stays open, Disney faces a nasty brawl as it tries to work out a restructuring plan with the 60 banks that have lent the project $3.4 billion.

Because of low attendance and penny-pinching guests during Europe's recession, EuroDisney is out of cash. Disney, which owns 49% of the French company vs. the public's 51%, has sent emergency funds since November to keep the park afloat. At that time, Disney took a $350 million write-off on the venture, including $175 million for the cash infusion.

"WATCH" LIST. The U.S. company threatens to close the park unless lenders restructure its debt by Mar. 31. That's probably more than a negotiating bluff. "Disney can't be seen by its stockholders to pump money into a bottomless pit," says analyst Nigel Reed of Paribas Capital Markets. Already, rating services have put the U.S. parent's bonds on their "watch" lists because of the French park's problems.

Disney's battle with the banks will soon start in earnest. On Jan. 14, lenders were to receive a report they ordered from KPMG Peat Marwick evaluating

EuroDisney's prospects. Negotiations will follow. Led by France's Banque Nationale de Paris and Banque Indosuez, the bank syndicate also includes Citibank and Deutsche Bank. Insiders say Disney wants the banks to convert some debt to equity and cut interest on remaining loans, to lighten the park's $290 million in annual debt service. The banks want Disney to inject new capital, which it's reluctant to do.

So far, Disney seems to have the upper hand. While its image would suffer from a EuroDisney bankruptcy, Disney's direct investment is only the $160 million that it paid for its 49% stake. The banks aren't eager to become the park's operators. Probably, they'd have to give up the Disney name and cartoon characters, further hurting attendance. If that happened, analysts say, the banks would probably close the park and sell its assets. Given the park's specialized equipment, they would likely lose a bundle.

But lenders do have leverage. Under French bankruptcy law, Disney can't just walk away if it's deemed to be the park's operator. Disney says it isn't, according to its bankers. The banks say it is--and threaten court action to prove it. If they won, bankers think the U.S. company's assets would be at risk in a bankruptcy. "Any judge in Europe would make Disney foot the bill," claims one of EuroDisney's lenders. Disney and EuroDisney executives declined to discuss the financial mess.

PARIS SHRUGS. If the park's backers can find a way to ease the financial burden, a payoff could arrive. The English Channel tunnel's opening in May should bring a flood of British tourists. Help should come, too, from a likely midyear upturn in Europe's economy. Recession held attendance to 9.5 million last year vs. an 11 million minimum for breakeven. EuroDisney lost $900 million in its year ended Sept. 30, although two-thirds of that was a write-off of pre-opening costs.

However, EuroDisney can't count on a rumored fairy godmother: the French government. Paris has put $350 million into park-related infrastructure and fears the loss of 11,000 jobs. But it won't invest more, says Claude Villain, state coordinator for the project. "If Disney and the banks see no future, why should we?" he asks. Good question. If EuroDisney's backers can't muster new confidence in the weeks ahead, Mickey may have to hang up his beret.

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