“No change in ratings or outlook (at this time). Liquidity reins supreme,” said Moody’s SVP and lead entertainment analyst Neil Begley.
He said Disney has a total of $12.25 billion of revolver capacity, presently undrawn except to backstop its outstanding commercial paper, It also has a sizable cash balance. That’s more than enough to cover bond maturities through the end of the fiscal year of about $2,4 billion. “We also expect the company will endeavor to control costs, delay capital expenditures and pay significantly lower taxes for fiscal 2020.”
That said, the detailed report showed the entertainment conglomerate being hit on all sides with the biggest punch coming from the parks, experiences and products division that’s 34% of total revenue. Disneyland in California, Walt Disney World Resort in Orlando, and Disneyland Paris Resort are shuttered at least through the end of the month on top of closures in Hong Kong, Shanghai (partially reopened) and Tokyo over the last few months. Cruises are suspended.
“There is potential for a significant economic hit to Disney if the closures last beyond June, but we expect the park closures and cruise ship suspensions to be a temporary disruption, hurting margins and adding to the $175 million operating income hit to the segment for the parks closed in Shanghai and Hong Kong earlier this year,” Moody’s said.
The movie studio is being squeezed as cinema closures rise throughout the world, films underperform (Onward) and releases are delayed (Mulan, New Mutants, Antler). The company’s film slate was heavily weighted toward its fiscal first quarter that ended in December, Moody’s noted.
Studio entertainment generates 17% of revenue.
At media networks, 33% of revenue, ESPN will take a hit from the suspension and postponement of the NBA and MLB seasons, as well as other live sports programming disruptions. Luckily, the company’s film slate was heavily weighted toward its fiscal first quarter that ended in December. Studio entertainment generates 17% of revenue.
Disney’s live performance results will be hit by Broadway going dark.
Moody’s also said investment in Disney+ and streaming has already eaten into free cash flow. Depending on how long coronavirus-related disruptions last, it is possible Disney will not generate free cash flow in fiscal 2020, delaying its deleveraging plan. Moody’s said the crisis 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.