Fitch downgrades Disney debt
By Russ Britt, CBS.MarketWatch.com
Last Update: 12:01 PM ET Aug 26, 2002
CHICAGO (CBS.MW) - Fitch Investor's Service downgraded Walt Disney Co.'s debt rating Monday, citing the company's heavy debt and uncertain prospects.
Fitch cut Disney's rating from "A-" to "BBB+" on $14 billion of debt. The rating is a few steps away from junk status.
Citing Disney's $5.2 billion acquisition of the Fox Family Channel in October, Fitch said the company experienced declining performance in its businesses following the purchase. Those businesses, particularly its theme parks and the ABC Network, have yet to show signs of rebounding.
"The issue for us is really what kind of credit metrics the company is going to be showing for some period of time," said Albert Turner, a Fitch analyst.
In a statement, Disney said: "We have worked to reduce sharply our debt levels this year, and we are comfortable with our ability to handle our obligations, and we see this as the result of short-term business conditions."
Fitch also put a negative rating on its outlook for Disney though management was lauded for its commitment to boosting the company's credit profile.
Disney is cutting capital expenditures from $1.8 billion to $1.25 billion, it eliminated $800 million in debt through sales of assets and is keeping costs "under tight control," as Fitch officials put it.
"I think they're credible plans," Turner said. "But as with anything the company undertakes, there are execution issues."
Disney's ABC Network currently is fourth among the four major networks and its theme parks took a severe body blow following the Sept. 11 terrorist attacks.
Further, Fitch says Disney's theatrical releases have been "disappointing" and the company has not reduced its exposure in that realm.
Fitch also cited Disney's troubles in its cornerstone animated feature film business, which has not been as successful in recent years as in the past. And Disney may find the competition more intense for that product as other studios start to release more animated films.
Shares of Disney (DIS: news) 27 cents to $16.56 in early trading.
What does this mean for Disney? I will admit to not knowing how this will effect The Disney Company, but I do know this isn't a good thing. I also remember not too long ago Disney's credit rating being lowered, but I do not believe it was by Fitch investor's Service.
Panthius