Stock buyback spurs Disney debt downgrade

Move could portend higher borrowing costs for conglom

HOLLYWOOD — Moody’s Investor Service cut Disney’s debt ratings on Thursday over concerns raised by the Mouse House’s recent $750 million stock buyback.

The hit to the Mouse’s ratings could portend higher borrowing costs for conglom. Move was expected, and the Standard & Poor’s rating service may follow suit with its own downgrades.

Moody’s warned after the Sept. 20 stock buyback that higher debt levels were jeopardizing Disney’s ratings. Two days earlier, the Mouse sold $1 billion in debt securities with proceeds tagged for eventual stock repurchases.

Conglom also plans to pay for its $5.3 billion purchase of Fox Family Worldwide with borrowed cash.

In downgrading Disney, Moody’s lowered its ratings to “A3” from “A2” on senior unsecured debt and to “P2” from “P1” on commercial paper. The debt ratings remain investment grade.

Separately Thursday, Prudential’s Katherine Styponias became the latest analyst to reduce year-end profit and revenue estimates for Disney. Like previous reductions, the adjustments arise from concerns that Mouse theme parks will fall prey to a downturn in U.S. tourism since the Sept. 11 terrorist attacks in New York and Washington, D.C.

“The company has yet to quantify the impact of the attacks, and we also think estimates may still need to come down some more,” Styponias wrote in a research note.

The analyst estimated attendance is down 20% at Disney’s U.S. parks, though it’s believed overseas parks have been less affected.

Disney’s stock also has been battered by the disaster fallout, but Mouse shares closed up 11¢ at $17.55 on Thursday.

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