Chase Disney Case

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Hong Kong Disneyland finance team met separately with Chase and 16 other banks in Hong Kong for the HKD3.3 billion financing during May 2000. In the first round competition, because the deal had a long tenor which banks don’t like besides the previous problems at Disneyland Paris, Chase decided to bid to lose in the first round competition. As local banks like Bank of China and HSBC were likely to bid aggressively, they also chose to bid aggressively enough to make the short list to protect their reputation. And if they happened to win the mandate, it would have to be on terms that met their earnings targets.

Need to evaluate the risks (credit and syndication) and returns (financial and reputational)

- What are the deal’s key risks and profit potential for Chase? Analyze Chase’s pricing strategy. Risks * Joint mandate → lower underwriting fees
* Aggressive competition → reduces profitability
* Disney’s bad track record
* Credit issues (long maturity, limited collateral, CFs to be used for CapEx, no willing to subordinate management fees and royalties to debt service) * Fully underwritten deal → underwriting risk

Reasons to bid

* Chase wants to maintain its relationship with Disney
* Might enhance Chase’s reputation in the region
* Despite the risks, might be profitable if the deal is designed carefully

- What are the tradeoffs of the market flex provision for Chase and Disney?
- How should Chase design the syndication strategy (general vs. sub-underwriting, syndicate size, loan shares etc.)? * Sub-underwriting is an optional, “wholesale”, phase of syndication and the general syndication is the “retail” phase * Sub-underwriting allows Chase to reduce underwriting risk and expedite the syndication process. However, the underwriter loses fees and league table status… * Some borrowers may request sub-underwriting to reward certain relationship banks with senior status and increased compensation...
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