Fitch maintains 'A' rating on Disney

Fitch keeps 'A' rating on Disney; says maturities on debt 'easily manageable' given cash flow

Associated Press

NEW YORK (AP) -- Fitch Ratings said Monday that it affirmed the "A'' issuer default rating on The Walt Disney Co. and its subsidiaries. The rating outlook is stable.

The rating and outlook reflects Disney's strong free cash flow and low relative debt, the ratings agency said.

Fitch expects annual free cash flow generation to exceed $3.5 billion in fiscal 2013, which for Disney will begin at the end of September. That's up from $2.5 billion in the current fiscal year, which was affected by several large capital projects, including the revamp of its Disney California Adventure theme park in Anaheim, Calif., across from Disneyland.

Although a lot of debt is maturing over the next several years, Fitch called such maturities "easily manageable" given Disney's free cash flow generation and access to capital markets.

The rating incorporates Fitch's expectation that Disney will use all of its free cash flow for share repurchases and acquisitions.

Disney's parks and resorts segment have benefited from increased spending, higher attendance and cruise ship launches, including the Disney Fantasy, which launched in March. Its broadcasting revenue from the TV network ABC and eight TV stations rose more than 1 percent in the fiscal year as local advertising was stable and higher ad prices offset lower audience ratings.

Parks and resorts, broadcasting and consumer products are the businesses most affected by shifts in the broader economy. However, even if the economy begins to sour, Fitch said it expects the company's credit profile will remain with the current rating.

The most stable business is Disney's pay TV channel business, led by ESPN. Fitch said it believes that Disney can continue to maintain its pricing power with distributors and attract sizable audiences, offsetting the risk of the increasing cost of sports programming rights.

Fitch said it did not expect that online video players will have a material negative impact on Disney's business in the intermediate term. In fact, Fitch said it believes that the proliferation of online video entrants such as Amazon.com Inc. and the increasing number of ways to consume content would continue to drive demand for Disney products.

TV Everywhere, the principle that online access to video be tied to a traditional monthly pay TV subscription, could potentially make such subscriptions more attractive to consumers, it said.

The decline of DVD sales is becoming less of a concern given the growth of digital movie sales and the higher profit margins associated with them, Fitch said.

As of the end of June, Disney had $4.4 billion in cash and $4.5 billion in credit available from revolving credit facilities. It had debts of $15 billion.

Disney shares slipped 20 cents at $52.15 in afternoon trading Monday after rising as high as $52.43 earlier in the session. That's just shy of the 52-week high of $52.75 hit on Friday.

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