Fitch: Turnaround not near for Disney

Agency particularly concerned by Mouse's ani ops

By MEREDITH AMDUR

The newly proactive credit ratings agency Fitch spelled out the details of its decision this week to downgrade Disney debt to the low investment grade of "triple B," noting that a substantial improvement in the company's debt-to-cash flow ratio was unlikely soon.

Fitch analyst Albert Turner told investors on a Wednesday conference call that he was dubious about Disney's prospects of improving its earnings situation in 2003 in light of the economy and the depressed travel and theme parks sectors.

Fitch highlighted the rising costs of sports contracts, such as that for NBA rights, as a cause of the current strain, though it commended Disney's success in raising affiliate fees for ESPN.

Turner said the agency was particularly concerned by the Mouse's animation operations, a core franchise with flow-through benefits throughout the TV and merchandise operations. The division, he noted, has failed to achieve its previous level of success while its competitors have been reinvigorated.

Still, Fitch said it believed Disney was committed to improving its credit position and had taken positive steps, such as reducing capital expenditures.

"We also believe the company is evaluating a variety of other measures to increase cash flow and strengthen its balance sheet," Turner noted.

And despite Disney's $15.3 billion in debt, liquidity is not likely to be a problem, thanks to a healthy $2.2 billion cash balance.