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Disneyland Paris survives to live another day thanks to investment from TWDC

Disneyland Paris Castle Show

Looks like I will get to take that Disneyland Paris vacation after all. No one seriously expected the Walt Disney Company (or France for that matter) to let the park close. With around 15,000 employees and 15 million yearly visitors, it’s a huge boost to the French economy. In addition to a black-eye for Disney, a closure would spell bad things for an economy, which is, admittedly, at the beginning of a delicate recovery. That just wasn’t going to happen.

The park debt, much of it the result of building too many hotels when the park opened, has been an albatross around the resorts neck since its beginning. Multiple refinancings and capital investment have floated the park through restructurings that the company hoped would finally put it in the black.

Early this morning, Euro Disney SAS, the parent company of Disneyland Paris, sent out a letter to its shareholders announcing yet another debt restructuring and capital investment. They also released this oddly optimistic explanation from Mark Stead, SVP and CFO of Euro Disney:

Yes, that’s a $1.25 billion recapitalization of the company (think of it as a mini-bankruptcy, we’re increasing the number of shares, which makes your shares worth less, but less is better than none, which would result in a full bankruptcy).

The details were outlined in a letter sent to Shareholders from the recently appointed President of Euro Disney SAS Tom Wolber:

Dark clouds over Tomorrowland

“First, there would be an injection of approximately 420 million euros via capital increases in Euro Disney S.C.A and its principal subsidiary. Second, there would be a significant reduction of the Group’s indebtedness through the conversion of 600 million euros of the debt owed to TWDC into equity of Euro Disney S.C.A. and its principal subsidiary. Lastly, there would be an improvement of the Group’s liquidity via the deferral of amortization of loans until final repayment in 2024.”

The conversion of 600 million euros of debt into equity and deferred amortization will reduce Euro Disney’s indebtedness to The Walt Disney Company significantly. The over all effect will reduce the leverage ration from approximately 15x to 6x. I hope that’s enough.

What you did not see in that announcement was new rides, refurbishments, or other investments. But the end result of this recapitalization is to put the company on a footing where it can afford to make those much needed capital investments without driving the company further into dept. There is a revolving fund of $350 million available to make those investments. $350 may not go very far by itself, but reduced dept payments should also mean that more of the take from the gate and store sales can also go back into operations and maintenance.

All this depends on approval from Shareholders at next year’s shareholder meeting, but it sounds like The Walt Disney Company will step in with some help between now and then (reading between the lines).

Is this enough to put Disneyland Paris on the path to true profitability? Time will see. Read this great explanation of how we got here from Disney and More. We at least have a few more years of capital investment ahead of us and it looks like The Walt Disney Company will play a larger role in the park’s management.

Do you think this will be enough? Should Disney have done more?