MOODY'S UPGRADES FOX FAMILY WORLDWIDE, INC.'S SENIOR UNSECURED DEBT RATING TO Baa1 FROM B1 AND REVISES OUTLOOK ON THE WALT DISNEY COMPANY'S RATINGS TO NEGATIVE FROM STABLE
Moody's Investors Service has upgraded Fox Family Worldwide, Inc.'s senior unsecured notes, due in 2007, to Baa1 from B1 following the Walt Disney Company's (A3 senior unsecured) completion of the acquisition of Fox Family from News Corp. and Saban Entertainment. In addition, Moody's has withdrawn the Ba2 senior secured rating on FCN Holding, Inc.'s bank credit facility as all outstanding debt was paid off at the close of the acquisition. At this time, Moody's has also changed the outlook on the Walt Disney Company's A3 rating (sr. unsec.) and ABC, Inc. and Disney Enterprises, Inc.'s A2 rating (sr. unsec.) to negative from stable.
The Fox Family upgrade reflects the importance of Fox Family, which will be renamed ABC Family, to Walt Disney's cable network strategy. However, the single notch distinction between Walt Disney's rating and that of Fox Family reflects the absence of any formal support or guarantees provided to the note holders. The rating outlook is negative as Fox Family's rating and outlook will move in step with Walt Disney's rating and outlook due to the implicit support provided by the parent to its wholly owned subsidiary.
Moody's expects that Disney will be able to integrate and improve the operating performance of Fox Family Worldwide by infusing it with Disney and ABC content. However, it will be challenged to meet the high targets required to fully justify the high purchase multiple. Moody's recognizes the strategic importance of Fox Family Worldwide to Disney in light of its 81 million cable and satellite television subscribers throughout the U.S.; a 76% interest in Fox Kids Europe, which reaches more than 24 million subscribers across Europe; Fox Kids channels in Latin America, and the Saban library and entertainment production businesses.
The change in outlook to negative from stable for The Walt Disney Company's ratings is a result of the Fox Family acquisition being fully debt-financed and Moody's expectation that the company will be challenged to take measures that will mitigate the acquisition's impact on debt leverage.
As discussed in Moody's press release dated September 27, 2001, Disney's ratings were downgraded and assigned a stable outlook contingent upon management's willingness and ability to take meaningful credit-positive measures to quickly improve the company's balance sheet. Based on the capital structure that has been put in place, Moody's believes the company will be challenged to mitigate operating and financial concerns with sufficient levels of asset sales, cost containment initiatives, more aggressive capital conservation, and delevering corporate finance strategies that would materially improve balance sheet strength.
The Walt Disney Company, headquartered in Burbank, California, is a diversified international media and entertainment company.
Fox Family Worldwide, Inc., with its headquarters in Los Angeles, California, is one of the largest producers of children's programming and owner of a major U.S. basic cable network.
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