Walt Disney (DIS 1.62%) has been one of the more vulnerable businesses to the social-distancing policy that health professionals have advised to stop the spread of COVID-19, but the company can't afford to keep people away from its theme parks for long. The House of Mouse generates roughly half of its annual revenue from theme parks, movies, and consumer products. To buy some time, Disney is turning to the debt markets.
In a filing with the Securities Exchange Commission on March 20, Disney said it was offering $6 billion in loans, which bear an interest rate from 3.35% to 4.7% and are due from 2025 through 2050. The company says the use of the proceeds will be for "general corporate purposes, including the repayment of indebtedness."
Parks are closed and debt is adding up
Disney is not in dire straits just yet. At the end of the last quarter in December, Disney held $10 billion in cash and investments.
But the problem is the company's $38 billion in long-term debt. Last year, the company's total borrowings more than doubled after it acquired Twenty-First Century Fox.
Fitch Ratings recently issued a negative credit outlook for Disney over concerns about how it will hold up with the economy while shut down. Disney said the measures to prevent the spread of the novel coronavirus are affecting the business "in a number of ways," and that this "should be considered in connection with an investment in the notes."
Disney has enough resources to get by for now, but given its financial position, it's got to get those parks up and running soon. As Fitch stated in its report, "Disney's businesses will normalize gradually in step with the return of economic activity as the coronavirus threat diminishes."