July 15, 1999 17:03
S&P revises Walt Disney Co rating outlook
(Press release provided by Standard & Poor's)
NEW YORK, July 15 - Standard & Poor's today revised its
rating outlook on Walt Disney Co. to negative from stable,
based on operating performance below expectations and higher
debt levels than anticipated, as well prospects for slower
growth over the near-to-intermediate term.
Ratings for the company were affirmed, as listed below.
Disney's rating reflects its well diversified media and
entertainment businesses, its increasingly global reach, and
the strength of its creative franchises.
Although Disney's theme parks have continued to deliver
growth with strong margins and robust opportunities exist in
the interactive area, operating performance has suffered in the
company's Disney Stores, licensing, and home video segments, as
well as at the ABC TV Network.
In addition, theme parks face increased competition in
Florida.
Capital spending is expected to remain relatively high over
the near term as the company completes certain projects,
including its new California Adventure park (to open in 2001)
and other resort properties.
Management is working to reduce capital reinvestment levels
across theme parks and resorts, and production spending in TV
and film.
Even so, any debt reduction is more likely to occur as a
result of potential asset sales rather than from business
discretionary cash flow.
Management is taking cost-reduction measures in the TV and
film production and distribution areas, and recently reached
an agreement with ABC Network affiliate stations that will
reduce affiliate compensation and help support network
high-profile sports costs.
Initiatives are underway to achieve management and creative
synergies across the business, and interactive businesses will
represent significant potential over the intermediate-to-long
term.
These measures, together with earnings momentum in growth
areas, will be essential to earnings performance, given the
decision to extend animated classics' hiatus periods between
re-releases to roughly 10 years, which could dampen the
contribution from the creative content segment.
OUTLOOK: NEGATIVE
Maintenance of ratings will depend on management's ability
to restore credit measures over the next year.
Target measures include earnings before interest, taxes,
depreciation, and amortization (EBITDA) coverage of gross
interest of 6.0 times (x) and debt to EBITDA of 1.5x. Ratings
incorporate no capacity for share repurchases or meaningful
debt-financed acquisitions.
Standard & Poor's may downgrade the ratings within the year
if these goals become unachievable.
RATINGS AFFIRMED
Walt Disney Co.
Corporate credit rating A/A-1
Senior unsecured debt A
Medium-term note program A/A-
Commercial paper A-1
Disney Enterprises, Inc.
Corporate credit rating A
Senior unsecured debt A
Capital Cities/ABC Inc.
Corporate credit rating A
Senior unsecured debt A |
