“This goes to the saying that use raise money when you can, not when you need it. Disney and Comcast are the two strongest companies in the media space and investors are happy to lend to them, so it is not surprising that the two of them tapped the bond market,” said one Wall Streeter.
NBCUniversal’s theme parks are closed, movie releases shifted and TV production largely shut down. The Summer Olympics in Tokyo slated to start in July were delayed, putting $1.25 billion of advertising revenue at risk. The company warned, as many have in recent weeks, that the coronavirus pandemic is having an material adverse impact on its businesses. Disney has said much the same.
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Comcast sold four tranches of notes with maturities from 2025 to 2040 worth between $800 million and $1.75 billion, and with interest rates from 3.1% to 3.75%.
“I think they’re smart, and it also scares me a little bit. Either they see the world as much worse than we do or they are just being conservative and prudent, to hope for the best but be prepared for the worst,” the Wall Streeter said.
Other companies have been tapping into their revolving lines of credit – loans that banks have committed to until a certain date but that can sit there unused until companies draw on them. Yesterday, Discovery took down $500 million of a $2.5 billion credit line at the bank. And AMC Entertainment tapped its entire line of credit. It’s essentially the equivalent of tapping into a home equity loan with your bank because you’re afraid the cash may not be there or your bank will no longer be willing to lend to you when you need it. Companies start paying interest on the loans when they draw down the cash.
One reason the Federal Reserve has been injecting liquidity into the banking system is to ensure that banks have the resources to honor these obligations to companies.
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