More Dis-crediting

Moody's latest to lower Mouse's rating

NEW YORK — Disney withstood the last of the credit agency downgrades Friday as Moody’s demoted some $14 billion in senior long-term Mouse debt from A3 to its third-lowest investment grade level, Baa1. The downgrade was widely expected and mirrors Standard & Poor’s credit cut from A- to BBB-plus earlier this month.

The reasons for the downgrade sounded familiar, too: an overly leveraged balance sheet relative to the cash performance at its core theme-park and TV networks business. The combination is deemed too unstable to entirely banish fears of default.

Moody’s also downgraded ratings for subsidiaries Disney Enterprises and ABC Inc. (from A2 to A3) and ABC Family (from Baa1 to Baa2), while nevertheless assigning a stable outlook. Disney sources were cheered by the “stable outlook,” its first in over a year from Moody’s, since it implies confidence that the company will meet its debt-reduction goals and operating improvement targets.

The market evidently agreed, as the stock was off only marginally for the day at $16.61.

Moody’s said that it expects the company will improve its operating performance through cost-cutting and limited topline improvements while further reducing its debt load over the next 18 months, most likely by selling noncore assets like the Anaheim Angels baseball team and/or a portion of its radio group.

In a statement, Disney repeated its refrain from previous downgrades: “We have worked to reduce our leverage this year, and we are committed to further reductions.”

Company said it views rating action as a result of short-term business conditions and that it remains optimistic about the prospects for the Walt Disney Co. “Disney is one of the most recognized global brands, has solid fundamentals and a tremendous, and growing, set of assets, and through investments and prudent management of the various businesses, Disney is positioned for growth well into the future.”

While external factors drive most of Moody’s concerns, slack ad demand due to diminished ratings and an anemic advertising environment along with continued theme-park woes make quick ratio improvements difficult.

“The increased risk profile is both a result of the adverse operating environment, and management’s ill-timed financial decisions over the last 18 months,” Moody’s concluded in a statement. And while the credit hawks note that management has laid out a substantial debt-reduction plan, this largely hinges on topline growth that would improve free cash flow and credit ratios.

Alphabet improvement

The conservative rating agency notes that ABC is on the right track to reverse its slide from first to fourth place in primetime ratings, but says it’s simply too early to judge future financial impact from consistent higher rating levels.

Looking to 2003, Moody’s cited concerns that the calendar year will be tougher without ad windfalls from the Olympics and political spending, not to mention the threat of a war in Iraq or whether automakers can be relied upon to continue their big spending.

Moody’s also singled out an ad slump at low-audience share channels like ABC Family, and the prospect that cable consolidation may force price concessions on subscriber fees.

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