Fitch Rates Disney's $1.1B Unsecured Notes 'A-'; Outlook Stable

Business Wire, July 13, 2007

CHICAGO -- Fitch Ratings has assigned an 'A-' rating to The Walt Disney Company's (Disney) $1.1 billion senior unsecured debt issuance.

Fitch currently rates Disney with a Stable Rating Outlook, as follows.

The Walt Disney Company

--Issuer Default Rating (IDR) 'A-';

--Senior unsecured 'A-';

--Commercial paper (CP) 'F2'.

Capital Cities / ABC Inc.

--Issuer Default Rating (IDR) 'A-';

--Senior unsecured 'A-'.

Disney's ratings continue to reflect the company's leading market positions in core businesses, unique brand franchises, healthy operating EBITDA margins, strong conversion of EBITDA to free cash flow and significant financial flexibility. Disney has benefited from cyclical improvements related to the theme park business, solid growth in ratings and advertising at ABC Broadcasting, success in leveraging its content across multiple distribution platforms, and management's focus on strengthening the company's credit profile over the past several years. Credit concerns center on the volatility of Disney's theme parks and resorts, studio and broadcast networks businesses and secular challenges facing some divisions, namely the film studio and broadcasting businesses. Also, while credit metrics have improved from already strong levels, share repurchase activity has been aggressive and would be a more meaningful concern if sustained at similar levels while operations were enduring pressure.

For the latest 12 months (LTM) ended March 31, 2007 consolidated gross (recourse and non-recourse) debt to operating EBITDA (excluding dividends from minority interests) was 1.5 times (x). Free cash flow (after dividends) to gross debt was 36%. Disney's financial metrics presently place the company comfortably within the 'A-' rating category, which offers them flexibility to address secular challenges facing its businesses, return capital to shareholders, make prudent (in terms of both size and strategy) acquisitions and endure a cyclical downturn.

Disney's liquidity is solid with more than $2.2 billion of cash and strong free cash flow of approximately $4.6 billion generated during the LTM period ended March 31, 2007. Liquidity is enhanced by bank facilities totaling $4.5 billion, which support the company's $4.5 billion CP program (availability as of March 31, 2007 was $3.3 billion reflecting letters of credit and CP balances). The bank facilities consist of a $2.25 billion senior unsecured revolver expiring in February 2010 and a $2.25 billion senior unsecured revolver expiring in 2011.

The facilities have minimal covenant protections. They contain a financial covenant of 3.0x minimum EBITDA to interest coverage and cross-default on principal greater than $250 million. The facilities do not contain any credit ratings-based defaults or covenants specifically relating to a material adverse change in Disney's financial condition. Consistent with many other investment grade bond indentures Disney's indentures contain no significant protections from potential leveraging events.

The capital structure includes $1.32 billion convertible senior notes due in 2023. These securities are assigned to class A (100% debt, no equity) as defined under Fitch's hybrid securities guidelines (published October 2006). Per Fitch's guidelines, these units are not considered mandatorily convertible units, and the underlying notes rank as senior notes (meaning that there is no loss-absorption benefit).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.