Disney's cash problem

wdwoutsider

Mouseketeer
Joined
May 7, 2020
This does not appear to be moves of a company that will open all theme parks anytime soon. At best i think we will see 1 WDW park open this summer. Disneyland is really hard to know, but clearly Disney is trying to load up on cash before its next quarterly earnings call and very bad loses.

Walt Disney Co. Plans Another Large Debt Sale To Further Boost Financial Position Amidst COVID-19

Walt Disney Co. filed a prospectus Monday with the SEC to offer multiple tranches of senior notes maturing between 2026 and 2060 to raise fresh cash. The amount, not specified yet, will be announced later but is likely to be quite large


Disney needs cash. For you shareholders out there. Sorry to say doesn't look a dividend for a while. Unthinkable three months ago!
 
Of course it is, but Disney at first took out 17.5 billion in credit lines when they thought this was only shorter term, a year or something. Now that it looks to be a years long problem of demand issues or worries about the overall economy they are talking about a major bond offer which means they think demand is gonna take longer to come back.

It's the natural path for them to take. We can now see why pretty much all construction has halted they wanted to preserve the cash. If it goes well they could boost construction! But overall of course Disney wants to do none of these things anytime they are borrowing money at these huge amounts the interest is alot.

I had no idea Mice could catch covid-19 but clearly they can!
 
If they didn't use this measure, then I think their SEC liaisons and financial team wouldn't be doing their job.

They have done the measures of reducing the burn rates; I see this move as trying to build a larger financial buffer, if necessary, for the unknown.
 


I do think its crystal clear we will not see all theme parks and hotels open on July 1. They wouldn't do this if cash was gonna start flowing in that soon from theme parks.
 
I think it's not going to be a full-on cash flow anytime this summer.

With that being said, a trickling in cash flow is a smart strategy to see if the safety measures are effective (if not, you adjust and redeploy). If the safety measures are effective with a park, you crack the cash flow valve open a little bit more. Repeat the process until fully operational across all business sectors.
 
Of course, Disney needs cash. You don’t cut your dividend if you have adequate cash. But a lot of other companies are cutting their dividends too. It doesn’t help we’re in a middle of a pandemic.

However, rates are super low, so let’s see how their debt prices out.
 


I don’t think anyone sees a full-blown park opening July 1. I think most of us see partial park openings with restrictions
 
Disney had $14.3 billion in cash, or cash equivalents according to their latest financial report. An additional $17 billion in untapped revolving credit lines. They also have a fairly strong rating with the major credit agencies. I am not sure if I would describe the company as one needing more cash. They are simply refinancing short term debt. Smart companies take advantage of low interest rates.
 
I do think its crystal clear we will not see all theme parks and hotels open on July 1. They wouldn't do this if cash was gonna start flowing in that soon from theme parks.
I don’t think that’s necessarily the case. Not saying they will be disney is taking a week by week approach to this.
 
Disney is doing alot more than refinancing debt. They clearly plan to take on alot more debt. No fault of their own but this whole thing is stretching on longer and longer. Anyone who heard the quarterly call disney is burning cash at a fast rate. No fault of disney's and they couldn't predict this happening, but they are burning cash at a fast pace. We found out why alot of construction stopped at least to preserve cash for things that hadn't been paid for.
 
I think when you consider how long their cruise ships are likely to be out of service, plus the fact that every theme park has been closed and 5 of them (WDW, Paris, Tokyo, DL, Hong Kong) will be closed for 90+ days and growing, and ESPN has no live sports to televise, and ABC has no shows in production, and commercial sales are down, and stores are still closed in many places....and that 25 % of Americans (not sure of global %) are unemployed and don’t have disposible income for a Disney trip or large commercial buy when things open, that this is the smart business thing to do.

honestly - investors might look at them poorly if they didn’t do these things!!
 
The day the closures happened, does anyone know how much CASH Disney had on hand? I know they have a lot of expenses as a company but I cant help but wonder if they were always cash strapped and this thing just revealed it.
 
I do think its crystal clear we will not see all theme parks and hotels open on July 1. They wouldn't do this if cash was gonna start flowing in that soon from theme parks.


What Disney is doing with regards to debt sales now has nothing to do with how soon they are opening. They're a publicly traded company. With so many unknowns, every business that is able to right now is building up as much cash as they can. They're trying to remain solvent and figuring out the best way to do it. Quite frankly, every person is....I read a story the other day that said bank deposits and accounts are larger now than at any time since the early 80's. Some businesses might sell debt. Others will be selling assets as they forcibly shrink. Others will file for bankruptcy and either disappear or try to restructure. This is why I've said on these boards for a while now that what is going on economically is simply not sustainable, and that if people don't start paying attention to this, what's going on with the virus right now will be peanuts compared to the devastation going on with business and the economy.

So many people have so little understanding of business, how it's run, and the long-lasting economic impacts of what is happening right now. No matter what government tells you, a large segment of the "temporary" economic damage being incurred right now will be permanent. Disney's bottom line is going to be hurt by this for YEARS....you can't lose $20-30 million per day for weeks on end and then just magically make that up in one fell swoop, especially when the restrictions that will be put in place won't allow Disney to pull in the amount of profit they "normally" would when they do re-open - and those restrictions will probably last through the summer, which is the peak time of year for Disney at the parks. You can't just keep going on and on as a business and continue to operate with nothing coming in on the revenue side of the ledger. And yeah, you can have credit lines. But banks don't give those away for free. You still have to service the debt and pay the interest. For many businesses, interest payments alone are enough to submarine them without revenue.
 
What Disney is doing with regards to debt sales now has nothing to do with how soon they are opening. They're a publicly traded company. With so many unknowns, every business that is able to right now is building up as much cash as they can. They're trying to remain solvent and figuring out the best way to do it. Quite frankly, every person is....I read a story the other day that said bank deposits and accounts are larger now than at any time since the early 80's. Some businesses might sell debt. Others will be selling assets as they forcibly shrink. Others will file for bankruptcy and either disappear or try to restructure. This is why I've said on these boards for a while now that what is going on economically is simply not sustainable, and that if people don't start paying attention to this, what's going on with the virus right now will be peanuts compared to the devastation going on with business and the economy.

So many people have so little understanding of business, how it's run, and the long-lasting economic impacts of what is happening right now. No matter what government tells you, a large segment of the "temporary" economic damage being incurred right now will be permanent. Disney's bottom line is going to be hurt by this for YEARS....you can't lose $20-30 million per day for weeks on end and then just magically make that up in one fell swoop, especially when the restrictions that will be put in place won't allow Disney to pull in the amount of profit they "normally" would when they do re-open - and those restrictions will probably last through the summer, which is the peak time of year for Disney at the parks. You can't just keep going on and on as a business and continue to operate with nothing coming in on the revenue side of the ledger. And yeah, you can have credit lines. But banks don't give those away for free. You still have to service the debt and pay the interest. For many businesses, interest payments alone are enough to submarine them without revenue.
Well, the only things that are keeping Disney busy revenue-wise as far as I know is Disney+ and shopDisney (the online side of the Disney Store), and the recently reopened SHDL, but even the revenue they pull in right now is just a smallfry in comparison to what all the Parks would be pulling in pre-pandemic.

It's also made me wonder what's going to be the become of the Disney Stores during and after the pandemic, seeing as they've been shrinking the number of stores on both sides of the Pond within the past 10 years and not been opening new stores since 3 years ago when the controversial P30 format was launched. And with some mall operators not being flexible with rates and demanding retailers to still pay in spite of the lockdowns, I have a feeling that some stores may end up facing the chop, especially those that have not seen a single refurbishment since even when Imagination Park was first introduced, as much as I'd hate to see the classic Pink and Greens become extinct.
 
Well, the only things that are keeping Disney busy revenue-wise as far as I know is Disney+ and shopDisney (the online side of the Disney Store), and the recently reopened SHDL, but even the revenue they pull in right now is just a smallfry in comparison to what all the Parks would be pulling in pre-pandemic.

It's also made me wonder what's going to be the become of the Disney Stores during and after the pandemic, seeing as they've been shrinking the number of stores on both sides of the Pond within the past 10 years and not been opening new stores since 3 years ago when the controversial P30 format was launched. And with some mall operators not being flexible with rates and demanding retailers to still pay in spite of the lockdowns, I have a feeling that some stores may end up facing the chop, especially those that have not seen a single refurbishment since even when Imagination Park was first introduced, as much as I'd hate to see the classic Pink and Greens become extinct.
In the past, a lot of the loss in the Disney stores was the removal of adult apparel. Never understood the strategy of just having kids stuff in the store. The only time I'd visit a Disney store was to buy my DW a shirt for a birthday or trip. Would love to see some of the parks clothing in the store too. But, that's dreaming...
 
In the past, a lot of the loss in the Disney stores was the removal of adult apparel. Never understood the strategy of just having kids stuff in the store. The only time I'd visit a Disney store was to buy my DW a shirt for a birthday or trip. Would love to see some of the parks clothing in the store too. But, that's dreaming...
There's supposed to be more of an equilibrium now, especially after the shopDisney rebranding did wonders on the range of adult-oriented merchandise, but still, there are stores that are in desperate need of a refurbishment, and given the lack of success of P30, they could at least come up with a new format that combines the best parts of Imagination Park with some of the features of P30, but without the Apple Store/Gap minimalism. Then again, I still have concerns about the future of malls post-pandemic, particularly since malls have been on the decline for years.
 
One key difference between this crisis and that of 2008 is the banks and the financial system. In the last 2 months the federal gov't has expressed a willingness to backstop the entire economy (the backstop in 2008 was much more limited) We might pay for this later but for now survival is paramount. Because of these actions liquidity has remained very strong and Disney is taking advantage of these opportunities (They can dry up very quickly). Strengthening a corporate balance sheet is just good basic practice - Opening the parks in June/July or even for the rest of 2020 probably has little impact on this action - Disney is taking advantage of shoring up financial liquidity . Many people don't understand the difference between profit and cash - companies can survive extended periods of negative profit but cash at zero is bankrupcy. I have been in corp finance for 20 years - have certainly never seen a situation like this but can't imagine how much worse it would already be without the functioning banking system. There is still a very real possibility things get worse - bankruptsies in Q3 and Q4 are likley to be higher but hopefully a controlled culling - not a mass execution...Disney sounds like they are aligning themselves to be able to survive whatever the phased startup looks like...
 
One key difference between this crisis and that of 2008 is the banks and the financial system. In the last 2 months the federal gov't has expressed a willingness to backstop the entire economy (the backstop in 2008 was much more limited) We might pay for this later but for now survival is paramount. Because of these actions liquidity has remained very strong and Disney is taking advantage of these opportunities (They can dry up very quickly). Strengthening a corporate balance sheet is just good basic practice - Opening the parks in June/July or even for the rest of 2020 probably has little impact on this action - Disney is taking advantage of shoring up financial liquidity . Many people don't understand the difference between profit and cash - companies can survive extended periods of negative profit but cash at zero is bankrupcy. I have been in corp finance for 20 years - have certainly never seen a situation like this but can't imagine how much worse it would already be without the functioning banking system. There is still a very real possibility things get worse - bankruptsies in Q3 and Q4 are likley to be higher but hopefully a controlled culling - not a mass execution...Disney sounds like they are aligning themselves to be able to survive whatever the phased startup looks like...

I started seeing yields grow again in high yield and preferred. The problem is going to be with the junk rated companies. It's going to be costly for them to refinance their debt the longer this continues.

Right now, we're at the tip of the iceberg for consumer spending. It's dropping fast and savings rates are going through the roof. The big question for me is how long this consumer behavior persists. I know that my spending is up because I had to setup a home office last minute and then fix stuff in my home that I would have to deal with daily while being home. These are projects I would have delayed, but I did them early. I'm hoping my spending returns to normal in another month.
 

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