Walt Disney
Executive Summary Tokyo Disneyland was opened to the public on April 15, 1983. This amusement park was owned and operated by an unrelated Japanese corporation. The Walt Disney Company received royalties, paid in Yen, on certain revenues generated by Tokyo Disneyland. This new overseas business venture was bringing some concern about the foreign exchange risk to Disney. The management team at the Disney has been considering hedging future Yen inflows from Disney Tokyo since 1985. Mr. Anderson, the director of finance at The Walt Disney Company, focused his attention on a possible 15 billion ten-year term loan with an interest rate of 7.5% paid semiannually. On the other hand, Goldman Sachs, who had been working with Disney on this problem, presents a rather unusual but potentially attractive solution: Disney could issue ECU Eurobonds and swap into a Yen liability. Goldman Sachs suggested them to create a Yen liability by swapping 10-year ECU Eurobonds with a sinking fund, the all-in costs of which were denominated in Yen.
As financial consultants, we have been asked by Walt Disney’s management to provide an evaluation of this alternative to the company for this financing decision. For this estimate, we have reviewed the data of the Consolidated Income Statements from 1982 to 1983, the Consolidated Balance Sheets of 1984 and 1983, the Historical Summary of Average Yen/Dollar Exchange Rates and Price Indexes, ECU/Yen Swap flows in the following ten years, Yen Long-dated foreign exchange forward, Cash flow of 10-year ECU Euro bonds with sinking fund (Exhibit 6), and also the list of the French Utility’s outstanding publicly Traded Eurobonds.
We employed the internal rate of return analysis to evaluate the each alternative. If taking the Goldman’s swap solution, Disney’s borrowing cost would be 7.004% in Yen (9.979% in dollar). If adopting the 10-year term loan, the total effective cost would be 7.748% in Yen (10.694% in
As financial consultants, we have been asked by Walt Disney’s management to provide an evaluation of this alternative to the company for this financing decision. For this estimate, we have reviewed the data of the Consolidated Income Statements from 1982 to 1983, the Consolidated Balance Sheets of 1984 and 1983, the Historical Summary of Average Yen/Dollar Exchange Rates and Price Indexes, ECU/Yen Swap flows in the following ten years, Yen Long-dated foreign exchange forward, Cash flow of 10-year ECU Euro bonds with sinking fund (Exhibit 6), and also the list of the French Utility’s outstanding publicly Traded Eurobonds.
We employed the internal rate of return analysis to evaluate the each alternative. If taking the Goldman’s swap solution, Disney’s borrowing cost would be 7.004% in Yen (9.979% in dollar). If adopting the 10-year term loan, the total effective cost would be 7.748% in Yen (10.694% in