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Wobbly Euro Disney gets a lift

Euro Disney’s key bankers and the Walt Disney Co. have agreed to back a rescue package believed to be worth around 13 billion French francs ($ 2.2 billion), likely ending a months-long stalemate over how to right the troubled resort.

The proposal requires Disney to inject almost 3 billion francs ($ 500 million) more into the unprofitable park and forgo royalties and management fees for five years.

The Burbank-based entertainment conglom also has agreed to take over ownership of some of the park’s attractions (probably one or two hotels) as part of a lease financing deal which is said to be favorable to Euro Disney. And it would provide a 1 billion franc ($ 172 million) standby line of credit for 10 years.

The package was announced Monday, less than three weeks before the March 31 deadline beyond which Disney had said it would no longer fund the day-to-day running of the park.

The terms call for raising 6 billion francs through a stock offering. Disney, which owns 49% of Euro Disney, would buy 49% of the new shares, with the banks taking the remainder. The money would be used to more than halve Euro Disney’s mountain of private debt to about 10 billion francs. In return, a portion of the park’s crippling interest repayments would be eliminated, and certain principal payments to lenders would be deferred.

Disney chairman Michael Eisner said his company was delighted to have worked out “a fair and economically sensible restructuring of the finances of Euro Disney.”

Euro Disney’s bankers were visibly relieved that they had avoided a worse-case scenario in which Disney walked away from the park leaving the money men in charge.

The deal, announced shortly before a shareholders meeting at Euro Disney, is backed by the bank’s joint steering committee. Its members, representing the biggest lenders — Banque Nationale de Paris, Banque Indosuez, Deutsche Bank, Caisse des Depots and Barclays Bank — met with the rest of the park’s 63 lenders Monday to seek approval for the plan.

For the deal to go through, all banks must give it their blessing. BNP negotiator Baudouin Prot said after the meeting that the reaction among Euro Disney’s lenders had been “generally favorable.”

Asked by Daily Variety what would happen if the banks aren’t unanimous in their support, Prot said “we will do our best to convince the banks.” The banks must give up some 1.6 billion francs in interest due and put off loan repayments for three years.

The deal also requires lenders and Walt Disney to buy bonds with 10-year warrants to buy Euro Disney common stock (at 40 francs a share, according to Deegan).

About 430 million new Euro Disney shares would be added to the 170 million outstanding, creating a severe dilution. The new stock is expected to be offered at a price well below the current stock market value of around 34 francs. Several entertainment analysts were maintaining a “sell” recommendation on Euro Disney shares Monday.

The stock Monday closed at 33.85 francs per share, down 8.6% from Friday. Analysts said the drop reflected the realization that a massive stock dilution would similarly dilute any profits potentially flowing to shareholders.

The stock sale is likely to further irritate Euro Disney’s smaller shareholders who bought at a launch price of 72 francs. The mood was anger at Monday’s shareholder meeting as questions forced Euro Disney chairman Philippe Bourguignon to defend parent company Walt Disney and the park’s record.

In the presentation of the annual report for fiscal 1993, Euro Disney management admitted that even with an agreement on the restructuring plan, the park will post further losses in fiscal 1994, which closes at the end of September. Last year Euro Disney spilled 5.3 billion francs ($ 913 million) of red ink. Estimates for this year’s losses were not available, but Bourguignon hopes the park, which opened April 12, 1992, will break even in 1995.

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