OREANDA-NEWS. Fitch Rates Disney's Offering 'A'; Outlook Stable Chicago Fitch Ratings has assigned an 'A' rating to The Walt Disney Company's (Disney) offering of benchmark-sized three-, 10, and 30-year senior unsecured notes. The Rating Outlook is Stable. The proceeds from the offering are expected to be used for general corporate purpose including the repayment of outstanding debt.

Fitch currently rates Disney's Issuer Default Rating (IDR) 'A'. Approximately $21.1 billion of debt was outstanding as of April 2, 2016, including $3.1 billion of commercial paper (CP). A full list of ratings follows at the end of this release.

Disney's capital structure and credit protection metrics remain consistent and within Fitch's expectations for the current rating. Consolidated leverage of 1.2x as of the latest 12 months (LTM) period ended April 2, 2016, is in line with fiscal year-end 2015 and 2014 metrics. Going forward, Fitch believes leverage will range between 1x and 1.4x during the ratings horizon after consideration for a modest increase in debt levels related to the higher level of share repurchases.

KEY RATING DRIVERS

Significant Financial Flexibility: Disney's operating profile positions the company to generate free cash flow (FCF) in excess of $3.5 billion annually during the ratings horizon, which coupled with strong liquidity and solid credit metrics provides the company with considerable financial flexibility at the current ratings. Disney's investment cycle within its Parks and Resorts segment is expected to increase capital spending to approximately $5 billion during fiscal 2016, which will temporarily hamper FCF generation.

Consistent Financial Policy: Given the strength of Disney's underlying businesses, strong liquidity position and Fitch's FCF expectations, Disney has the financial flexibility to accommodate a higher level of share repurchases, which are expected to range between $6 billion and $8 billion during fiscal 2016, in a manner consistent with its current ratings. Ratings incorporate Fitch's expectations that the company's share repurchases and M&A activity will likely exceed FCF generation given strong liquidity and the current credit profile.

Leading Market Positions and Leveragability: Disney has a very consistent investment strategy centered on creating or acquiring intellectual property and content that is leverageable across Disney's various platforms. Disney is uniquely positioned, relative to its peers, to capitalize and monetize its internally or externally developed franchises and brands, which in turn strengthens the company's operating and credit profile and provides Disney with a sustainable competitive advantage.

Strength of Cable Networks: Disney's strong portfolio of cable networks, ESPN in particular, underlies the company's ratings. Fitch believes that the top-tier channels will continue to be a must carry for the distributors and are likely to retain pricing power. Disney's operating profile benefits from the stability, recurring dual-stream revenue profile, high operating margin and FCF generation characteristics attributable to its cable network business. Fitch expects this segment will continue to generate a significant amount of Disney's cash flow.

Credible Strategy to Address Threats: Disney's strong asset portfolio positions the company to address the secular threats and opportunities presented by emerging alternative distribution platforms and continued audience fragmentation across the media and entertainment landscape.

Fitch does not anticipate any meaningful changes to Disney's financial policy over the ratings horizon. Fitch believes Disney maintains an appropriate balance between returning capital to shareholders, in the form of dividends and share repurchases, and investing in the strategic needs of its business. In terms of capital allocation priority, Fitch believes investing in internal opportunities focused on organic growth, such as the company's investment in its various parks and resorts worldwide and long term sports rights deals, takes precedence over merger and acquisitions and shareholder returns.

Fitch expects that Disney will manage the level of share repurchase activity in a manner consistent with its current ratings and acknowledges that the company's share repurchases and M&A activity will likely exceed FCF generation. Fitch anticipates share repurchases to range between $6 billion and $8 billion during fiscal 2016. Disney repurchased approximately 42 million shares of its common stock for approximately $4.4 billion during the first six months of fiscal 2016. As of April 2, 2016, the company had remaining authorization to repurchase approximately 314 million additional shares.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case include:

--The revenue growth within the company's cable networks business (Disney's Media Networks segment) reflects the stability of the business and expected affiliate fee increases. Fitch anticipates mid-single-digit affiliate revenue growth.

--Disney's broadcasting business benefits from a stable economic and advertising environment while incorporating typical political advertising revenue cycle. Additionally, this segment will benefit from growing retransmission consent fees. Revenue growth ranges between 2% during non-political years and 4% during political years.

--Programming expenses are expected to increase by high-single digits driven by sports rights costs.

--Fitch assumes typical volatility within the Studio Entertainment, Parks and Resort, and Consumer Products & Interactive Media operating segments.

--Domestic revenues grow faster than International revenues within the company's Parks and Resort segment. Fitch incorporates start-up expenses related to the opening of its Shanghai Disney Resort in 2016.

--Fitch expects low double digit growth within Disney's Studio Entertainment segment this year due to the release of Star Wars and a strong 2016 film slate. Theatrical revenues are slightly offset by a weaker Home Video release schedule when compared to 2015. Home entertainment revenues will track the theatrical success in 2017 and 2018. Television and SVOD revenues grow at a mid-single digit pace while home entertainment revenues remain flat.

--From a margin perspective, the base case assumes relatively flat margins within the company's Media Networks segment as retransmission revenue gains enhance broadcast margins while cable network margins remain stable reflecting the company's ability to grow higher margin affiliate fee revenues at a similar pace to increasing programming costs. Disney's pre-opening expenses related to its Shanghai Disneyland opening are expected to be offset by strong domestic operating performance leading to relatively flat margins within the company's Parks and Resorts segment. Coming off a strong operating performance in fiscal 2015, margins within Studio Entertainment are expected to contract somewhat during fiscal 2016.

RATING SENSITIVITIES

Positive: Upward momentum to the ratings is unlikely over the intermediate term. However, a compelling rationale for, and an explicit public commitment to, more conservative leverage thresholds could result in upgrade consideration.

Negative: Negative rating actions are more likely to coincide with discretionary actions of Disney's management rather than by operating performance, reflecting the company's significant financial flexibility. Decisions that increase leverage beyond 1.75x in the absence of a credible plan to reduce leverage will likely lead to a negative rating action.

LIQUIDITY

Disney's liquidity position and financial flexibility remain strong and is supported by significant FCF generation as well as $6 billion of aggregate available borrowing capacity (as of April 2, 2016) under three credit facilities. Commitments under these credit facilities support the company's $6 billion CP program and expire during March 2017 ($1.5 billion), March 2019 ($2.25 billion) and March 2021 ($2.25 billion). In addition, the company had approximately $5 billion of cash on hand as of April 2, 2016. Scheduled maturities are well laddered and manageable considering FCF generation expectations and access to capital markets.

Disney has approximately $1.5 billion of debt scheduled to mature during the remainder of its fiscal 2016 followed by $2.2 billion during fiscal 2017. Fitch does not expect debt reduction going forward.

FULL LIST OF RATING ACTIONS

Fitch currently rates Disney as follows:

The Walt Disney Company

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

--Senior unsecured debt 'A';

--Senior unsecured revolvers 'A';

--Short-Term IDR 'F1';

--Commercial paper 'F1'.

ABC Inc.

--IDR 'A';

--Senior unsecured debt 'A'.

Disney Enterprises, Inc.

--IDR 'A';

--Senior unsecured debt 'A'.

Total debt as of April 2, 2016 was approximately $21.1 billion and consisted of:

--$3.1 billion of commercial paper (CP);

--$16.4 billion of notes and debentures, with maturities ranging from August 2016 to 2093;

--$818 million of debt related to international theme bark borrowings, which is non-recourse back to Disney but which Fitch consolidates under the assumption that the company would back the loan payments;

--Approximately $791 million of foreign currency-denominated debt, including the debt related to the acquisition of UTV.

Fitch links the IDRs of the issuing entities (predominantly based on the lack of any material restrictions on movements of cash between the entities) and treats the unsecured debt of the entire company as pari passu. Fitch recognizes the absence of upstream guarantees from the operating assets and that debt at Disney Enterprises is structurally senior to the holding company debt. However, we do not distinguish the issue ratings at the two entities due to the strong 'A' category-investment grade IDR, Fitch's expectations of stable financial policies, and the anticipation that future debt will be issued by Walt Disney Company. Fitch would consider distinguishing between the ratings if we viewed there to be heightened risk of the company's IDR falling to non-investment grade (where Disney Enterprises' enhanced recovery prospects would be more relevant).