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Rating Action:

Moody's assigns A2 to The Walt Disney Company's proposed notes offering

27 Mar 2020

New York, March 27, 2020 -- Moody's Investors Service ("Moody's") assigned an A2 rating to The Walt Disney Company's (Disney) proposed notes offering. The proposed issuance will be denominated in Canadian dollars (CAD) of benchmark size and have a tenor of 7 years maturing in 2027. The senior unsecured notes will be pari passu with the company's existing senior unsecured indebtedness and will be guaranteed by TWDC Enterprises 18 Corp., a subsidiary of Disney. Proceeds will be used for general corporate purposes, which Moody's believes will include strengthening liquidity and could include paying down outstanding commercial paper balances or fund upcoming debt maturities. The rating outlook for Disney is stable.

"This transaction will help assure that Disney has significant liquidity to help carry it through this "black swan" cycle caused by the spread of COVID-19", stated Neil Begley a Moody's Senior Vice President. It has a total of $12.25 billion of revolver capacity, which is presently undrawn except to backstop its outstanding commercial paper, which may be reduced with the use of proceeds from this transaction. The company also has a sizable cash balance which can also be used to meet commercial paper maturities if they cannot be rolled over or bond maturities which total $2.4 billion in fiscal 2020. "We believe that the cash on hand and bank facilities will be more than adequate to meet all the company's needs at this time and this transaction will only bolster the company's solid liquidity position which is important financial insurance since the crises duration and economic knock-on effects are still unknown" added Begley. Moody's also expects the company will endeavor to control costs and delay capital expenditures. Lower profitability should result in significantly lower taxes for fiscal 2020 as well.

A summary of today's action follows:

Assignments:

..Issuer: Walt Disney Company (The)

....Backed Senior Unsecured Regular Bond/Debentures, Assigned A2

RATINGS RATIONALE

Disney's A2 rating is supported by its diverse business segments, strong brands and robust free cash flow generation. Its portfolio of iconic brands and franchises positions the company well as the industry transitions from traditional linear to direct-to-consumer. While Disney's leverage will be temporarily higher than what Moody's considers acceptable for the company's A2 rating because of its acquisition of Twenty-First Century Fox's entertainment assets and temporary business disruptions due to the spread of COVID-19, Disney's management remains committed to its historically conservative financial policy, and Moody's still expects the company to reduce leverage back in line with its historical norm over the next few years.

Moody's had expected Disney's adjusted debt-to-ebitda leverage to be 2.25x by the end of calendar 2022. However, given the steep business disruptions the company is facing due to COVID-19, assuming disruption through the end of the second calendar quarter, and then a gradual ramp up of theme park and cruise operations, Moody's believes leverage will be about 2.75x by the end of 2022 (2.4x without the Hulu adjustment of $5.775 billion). This will add between six months and a year to the time the company will need to return its balance sheet to credit metrics consistent with its current A2 long-term debt ratings.

The stable outlook reflects our view that Disney will continue to reinvest in its businesses to sustain its competitive position and cash flows, and manage its credit profile commensurate with the A2 long-term debt rating. The outlook also reflects our assumption that Disney will suspend share repurchases until leverage is reduced to under 2.25x including Moody's adjustments and including the put/call agreement between the company and Comcast for the acquisition of Comcast's Hulu stake in 2024.

Moody's would consider an upgrade of Disney's A2 rating if debt/EBITDA leverage (Moody's adjusted) is sustained under 1.5x and FCF/EBITDA (Moody's adjusted) is above 35%. A strong commitment from the company's management and board of directors to these stronger metrics would also be necessary for consideration of a higher rating. Moody's would consider a downgrade of Disney's A2 rating if management adjusts its financial policy, becoming less conservative, or if the company does not remain committed to keeping leverage below 2.25x. Ratings could also be downgraded if the company underperforms due to heavier than expected secular pressures such that it is unable to sustain its conservative credit metrics.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Walt Disney Company ("Disney"), with its headquarters in Burbank, California, is a diversified worldwide media and entertainment company operating under four main business segments: Media Networks; Parks, Experiences & Products; Studio Entertainment; and Direct-to-Consumer & International.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Lenny J. Ajzenman
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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