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Rating Action:

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

11 May 2020

New York, May 11, 2020 -- Moody's Investors Service, ("Moody's") assigned an A2 rating to The Walt Disney Company's (Disney) proposed senior unsecured notes offering. The offering will include multiple tranches maturing in 2026, 2028, 2031, 2040, 2051, and 2060 and they 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 will include paying down outstanding commercial paper as it comes due as well as refinancing upcoming debt maturities. The rating outlook for Disney is stable.

"This transaction will add to Disney's significant liquidity as it will free up revolving debt capacity otherwise assumed set aside to back outstanding commercial paper and near-term maturities, and essentially removes any question that the company has robust liquidity to help carry it through this "black swan" cycle caused by the spread of COVID-19", stated Neil Begley, Moody's Senior Vice President. The company has a total of $17.25 billion of revolver capacity, which is presently undrawn except to backstop its outstanding commercial paper, which will be reduced as it matures and is repaid with the proceeds from this transaction over time. The company also has a sizable cash balance which totaled about $14.3 billion (excluding restricted cash) at the end of the company's second fiscal quarter ended March 28, 2020. Current debt maturities at the end of the second fiscal quarter were about $12.7 billion, including commercial paper and maturing notes over the next twelve months. "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 further bolster the company's solid liquidity position which is important financial insurance since the crisis duration and economic knock-on effects are still unknown" added Begley. The company has suspended its semi-annual dividend payable in July and is endeavoring to control costs and delay capital expenditures. Lower profitability should result in significantly lower taxes for fiscal 2020 as well. Overall, we expect that leverage will rise significantly for fiscal 2020 due primarily to the COVID-19 temporary negative effects on the company's revenue and EBITDA, though we do not anticipate that the crisis will substantially impact the company's net debt levels.

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, the industry's strong brands and normally 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.

Pre-COVID-19, Moody's had expected Disney's adjusted debt-to-ebitda leverage would decline to 2.25x by the end of calendar 2022. However, the deleveraging will be delayed given the steep business disruptions the company is facing, assuming disruption through the end of the second calendar quarter, and then a gradual opening and ramp up of theatrical film, theme park and cruise operations in the third and fourth calendar quarters and into 2021. Moody's believes leverage will be about 2.9x by the end of 2022 (2.6x without the Hulu adjustment of $5.775 billion), though there remains significant uncertainty surrounding this forecast. We believe that the effects of COVID-19 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 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, and the company will continue to suspend dividends as long as it is materially impacted by the COVID-19 pandemic.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

While highly unlikely over the next several years due to the current crisis, 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 the COVID-19 pandemic continues to constrain a material amount of the company's operations through fiscal 2021, or management adjusts its financial policy, becoming less conservative, or if the company does not remain committed to returning and sustaining leverage below 2.25x.

Social risks for Disney can include a data breach event, where intellectual property and other internal types of sensitive records could be subject to legal or reputational issues. However, management monitors its social risks closely, including data protection, and workforce resource planning. Disney's exposure to social risks also stem from technological evolution and demographic change that is altering consumer viewing habits. These trends have and will continue to negatively impact Disney's linear TV networks and broadcast stations through subscriber losses. However, with the recent spread of the coronavirus and subsequent theme park, retail stores, cancellation of sporting events and movie theater closures across the country, along with an expected reduction in advertising revenues, we view this as a social risk as well and expect it to lead to lost revenues until the threat of the spread and economic after effects have subsided. Disney's governance risk is low, underpinned by conservative financial strategies and prudent M&A strategies. While the company's leverage is out of bounds for its current rating following the partially debt-funded acquisition of Twenty-First Century Fox along with the temporary negative effects of COVID-19, the company is committed to reduce leverage back in line with historical levels by controlling costs and sticking to its conservative financial policy.

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The media sector has been one of the sectors significantly affected by the shock given its sensitivity to consumer demand, sentiment, and box office success. More specifically, Disney's exposure to advertising, theme parks, sporting events, television production and film releases in theatres, which are all now closed throughout the country and most of the world to limit the spread of the virus, have left it vulnerable in these unprecedented operating conditions and Disney remains vulnerable to the outbreak continuing to spread. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, 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 further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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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