Fitch: Disney's Outlook To Stable; Affirms 'BBB+/F2' Rtgs
DOW JONES NEWSWIRES
December 20, 2004 2:37 p.m.
The following is a press release from Fitch Ratings:
Fitch Ratings-Chicago-December 20, 2004: Fitch Ratings has affirmed The Walt Disney Company's (Disney) senior unsecured debt at 'BBB+' and commercial paper (CP) program at 'F2' and revised the Rating Outlook to Stable from Negative. Approximately $10.7 billion of rated public debt securities are affected by Fitch's action.
The Rating Outlook revision to Stable reflects the steady improvement in Disney's credit metrics resulting from the company's improved financial performance and from progressive reduction in debt. Credit metrics have trended positively in 2003 and 2004 as free cash flow has been utilized to reduce debt and the company's main operating units, particularly ESPN in cable networks and the theme park and resorts operations, have improved profitability. Over this period, important successes of first run filmed entertainment and follow-on DVD sales have also contributed meaningfully to the operating improvement.
Disney's ratings continue to reflect the company's leading market positions in core businesses, unique brand franchises, and solid financial flexibility. The company has benefited from cyclical improvements in the domestic economy, especially related to the theme park and resorts operations, a stronger advertising environment, and from management's focus on strengthening the company's credit profile. Credit concerns focus on Disney's dependence on the performance of the ESPN cable network and theme park and resorts operations to offset the uneven performance of other businesses. Additionally, strong competition and operational challenges remain for the unprofitable ABC network and in the studio segment, given the termination of the Pixar relationship with Disney and the company's need to reconstitute its in-house animated operations.
EBITDA of $5.7 billion in fiscal 2004, has increased 55% from the $3.7 billion low point in fiscal year 2002. Over the last two years, the company has reduced debt by more than $3 billion with the use of free cash flow. (Debt at the end of 2004 of $13.5 billion reflects the consolidation of $2.2 billion of Euro Disney debt and $545 million of Hong Kong Disney debt as a result of FIN46 (Variable Interest Entities) reporting requirements). Higher EBITDA and lower debt levels have resulted in a 2.4 times (x) leverage ratio, which is more consistent with the BBB+ rating category. EBITDA/Interest coverage of 8.6x is also strong at the 'BBB+' rating level. Primary credit protection measures are expected to remain stable or improve, reflecting a favorable earnings outlook and economy.
Disney has a solid liquidity position with $2 billion of cash and strong free cash flow of $2.9 billion for the fiscal year ending Sept. 30, 2004. Liquidity is enhanced by bank facilities totaling $4.5 billion, which support the company's $4.5 billion commercial paper program. The committed bank facilities consist of a $2.25 billion senior unsecured revolver, expiring February 2005 and a $2.25 billion senior unsecured revolver expiring in February 2009.
Strong free cash flow from the improved operating performance of the company, allowed Disney to reduced debt by $2.4 billion in fiscal 2004 to $10.7 billion, before including the FIN 46 consolidation of the debt of Euro Disney. Additionally, Disney applied free cash flow toward $335 million of share repurchases in fiscal 2004 and also announced a 14% increase in its dividend to an estimated $492 million from $430 million. Maturities are manageable with $1.7 billion due in fiscal 2005 and $1.5 billion in fiscal 2006. Fitch believes that the company's strong free cash flow and sizeable cash balances will accommodate Disney's existing share repurchase level while maintaining the current ratings.
DOW JONES NEWSWIRES
December 20, 2004 2:37 p.m.
The following is a press release from Fitch Ratings:
Fitch Ratings-Chicago-December 20, 2004: Fitch Ratings has affirmed The Walt Disney Company's (Disney) senior unsecured debt at 'BBB+' and commercial paper (CP) program at 'F2' and revised the Rating Outlook to Stable from Negative. Approximately $10.7 billion of rated public debt securities are affected by Fitch's action.
The Rating Outlook revision to Stable reflects the steady improvement in Disney's credit metrics resulting from the company's improved financial performance and from progressive reduction in debt. Credit metrics have trended positively in 2003 and 2004 as free cash flow has been utilized to reduce debt and the company's main operating units, particularly ESPN in cable networks and the theme park and resorts operations, have improved profitability. Over this period, important successes of first run filmed entertainment and follow-on DVD sales have also contributed meaningfully to the operating improvement.
Disney's ratings continue to reflect the company's leading market positions in core businesses, unique brand franchises, and solid financial flexibility. The company has benefited from cyclical improvements in the domestic economy, especially related to the theme park and resorts operations, a stronger advertising environment, and from management's focus on strengthening the company's credit profile. Credit concerns focus on Disney's dependence on the performance of the ESPN cable network and theme park and resorts operations to offset the uneven performance of other businesses. Additionally, strong competition and operational challenges remain for the unprofitable ABC network and in the studio segment, given the termination of the Pixar relationship with Disney and the company's need to reconstitute its in-house animated operations.
EBITDA of $5.7 billion in fiscal 2004, has increased 55% from the $3.7 billion low point in fiscal year 2002. Over the last two years, the company has reduced debt by more than $3 billion with the use of free cash flow. (Debt at the end of 2004 of $13.5 billion reflects the consolidation of $2.2 billion of Euro Disney debt and $545 million of Hong Kong Disney debt as a result of FIN46 (Variable Interest Entities) reporting requirements). Higher EBITDA and lower debt levels have resulted in a 2.4 times (x) leverage ratio, which is more consistent with the BBB+ rating category. EBITDA/Interest coverage of 8.6x is also strong at the 'BBB+' rating level. Primary credit protection measures are expected to remain stable or improve, reflecting a favorable earnings outlook and economy.
Disney has a solid liquidity position with $2 billion of cash and strong free cash flow of $2.9 billion for the fiscal year ending Sept. 30, 2004. Liquidity is enhanced by bank facilities totaling $4.5 billion, which support the company's $4.5 billion commercial paper program. The committed bank facilities consist of a $2.25 billion senior unsecured revolver, expiring February 2005 and a $2.25 billion senior unsecured revolver expiring in February 2009.
Strong free cash flow from the improved operating performance of the company, allowed Disney to reduced debt by $2.4 billion in fiscal 2004 to $10.7 billion, before including the FIN 46 consolidation of the debt of Euro Disney. Additionally, Disney applied free cash flow toward $335 million of share repurchases in fiscal 2004 and also announced a 14% increase in its dividend to an estimated $492 million from $430 million. Maturities are manageable with $1.7 billion due in fiscal 2005 and $1.5 billion in fiscal 2006. Fitch believes that the company's strong free cash flow and sizeable cash balances will accommodate Disney's existing share repurchase level while maintaining the current ratings.