Running head: The W.

Disney Firm’s Yen Financing 1

THE WALT DISNEY FIRM’S YEN FINANCING

Table of Contents
The Case Summary................................................................................................................................3

Question 1..............................................................................................................................................4

Question 2..............................................................................................................................................8

Appendix.............................................................................................................................................11
THE W. DISNEY FIRM’S YEN FINANCING 3

The Case Summary

California, managed diversion and network, produced moving pictures and television

attributes, made section property estimates, and sold customer products. The W. Disney was

formed in the year 1938 as a replacement to the active moving pictures working.

The firm managed the Disneyland entertainment amusement park in Anaheim,

California, and the W. Disney global destination spot in Orlando the city of lights.

Furthermore to the local enjoyment and sales from Disneyland and W. Disney, the firm got

percentages, which they got in the currency yen, on particular sales produced by Tokyo

Disneyland, retained and managed by a separate Japan’s firm. Disneyland of Tokyo was fully

functional and was opened to the general public in 1983.

Combined sales for the W. Disney firm and its branches raised by about 27.2% in 1984

to $ 1.7 b. Total recreational and leisure revenue, including royals from Tokyo Disneyland,

increased by 6% to $ 1.12 b in the financial year ended Sep 30, 1984. Total revenue reached $

97.87 m in 1984, an increase of 5.5% from 1983. Total assets grew by 15% to $ 2.71 b by the

end of the 1984 financial year.

In early July 1985, Rolf Anderson, chief financial officer at The Walt Disney Company,

was concerned about foreign exchange earnings due to Yen receipts from Tokyo Disneyland

rising sharply last year ( ￥ 8 billion), and Disney saw continued growth (10% - 20%) in the

coming years. . The current local rate of JPY / USD is 248; a decrease of about 8% from last

year's figure of 229.70 is also a matter of concern.

To decreae the risk of foreign exchange, Walt Disney has two proposals. First, Disney

was expecting a $ 19 billion loan, paid to the principal for final maturity, which required an
THE W. DISNEY FIRM’S YEN FINANCING 4

annual interest rate of 7.50% and a foreclosure of 0.75%. Second, Goldman Sachs proposed to

arrange for Walt Disney and French Utility to enter into exchanges, mediated by the Industrial

Bank of Japan (IBJ), where the system will take ECU debt in exchange for future Yen receipts,

while Disney will take Yen credit in exchange for timely receipts. The future. Definition

Walt Disney is considering blocking the future entry of Disney Tokyo. It explores

strategies using FX Forward submissions, swaps, and Yen term. Goldman Sachs introduces an

unusual but enticing solution: Disney could issue ECU Eurobonds and convert into Yen debt.

This case explains how this approach will work and suggests students' ways to explore fencing

options. At the time of the 1984 financial year, receipts for the fidelity of the yen were just over

eight billion. With a 15% growth rate and a 10% decline rate, the Walt Disney Company will

face a loss of 3 million yen if it does not accumulate a portion of the expected future receipts. In

all aspects of the terms, the company may consider three different methods for obtaining yen

receipts. First, Disney was considering a ten-year loan of fifteen thousand coins, paid to the

principal at the final maturity, required a 7.50% interest-paid annual fee, and an advance of

0.75%. The second method was to use foreign exchange in advance. Finally, with a suggestion

from Goldman Sachs, Disney could issue a 10-year ECU Eurobonds that could be converted into

a yen loan at a cost that would not attract more yen than an annual loan.

Question 1

A1. Disney needs USD for building and expansion purposes but not much exposure to YEN

cash flow. As a result, Disney needs to transfer YEN to USD. Because the amount of money

earned in JPY is large, the decline in JPY could significantly affect Disney's financial plans.

Given the YEN / USD rate fluctuations, this is a major exposure that needs to be rounded up. In

view of the long-term trend, if the announcement of JPY is below expectations, it will damage
THE W. DISNEY FIRM’S YEN FINANCING 5

Disney's system. Therefore, a reasonable fence is the best solution to cover future downtime at

ku- / $.

There are a few possible solutions

1) Create a YEN loan - a loan of fifteen thousand characters

2) SWAP solution provided by Goldman Sachs Alternative 1

JPY Loan Term

One of the possible solutions was to create a Yen loan with a 10 inyaka 15 billion ten-year loan

from the Japanese bank at an annual interest rate of 7.50%. It can enclose JPY royalties, and the

proceeds can be used to pay off other temporary debts and split Disney debt maturity structure.

Total cost of this JPY Term loan:

IRR = 3.804% semi-year (from Excel sheet Bank Loan)

Total annual cost of JPY Term Loan = (1 + 3.80423%) 2-1 = 7.753%

Alternative 2

SWAP solution offered by Goldman Sachs

ECU Eurobond

Another alternative, suggested by Goldman Sachs, is that Disney has issued a ten-year

Eurobonds of ECU80 million that can be converted into Yen debt at a cost that would not be

more appealing to the entire Yen currency than the Yen term debt.

Exhibit 6 data from Excel

IRR = Total Cost of ECU Eurobond = 9.47% (Excel sheet Switch) ECU / YEN SWAP
THE W. DISNEY FIRM’S YEN FINANCING 6

After issuing the Eurobond, Disney needs to REPLACE ECU debt to YEN credit to achieve the

goal of securing future YEN receipts.

In finance, the exchange is based on another when two partners agree to exchange one stream of

cash flow into another stream. Exchanges can be used to prevent certain risks such as interest

rate risk, or to speculate about changes in lower prices.

In this case, Disney tried to use SWAP to transfer ECU debt to YEN and French Utility.

SWAPs are popular and attractive, as they can benefit both contract partners. Exchanges can

benefit both firms if firms in different countries have comparative advantages at interest rates.

In such a case the party pays / receives fixed interest on currency A to obtain / pay the fixed rate

on currency B for a period of T years. For example, you pay JPY 1.6% for JPY notional for

1.2 billion and receive USD 5.36% of USD equivalent to 10 million for the initial exchange rate

of USD / JPY 120. These firms can exchange to benefit from lower prices.

Comparative interest loan loans:

JPY Loan ECU loan

Walt Disney (rated A) 7.75% 9.47%

French Utility (rated AAA) 6.83% A 9.37% B

A - YTM for French Eurobonds with hot ten-year Yen (Exhibit 8) B - YTM for French

Eurobonds with ECU's ten-year maturity rate (Exhibit 8)

From the table above, we note that French Utility has benefits in both financial liabilities, but

Disney has Comparative-Advantage in the ECU. If Disney borrows from the ECU and French
THE W. DISNEY FIRM’S YEN FINANCING 7

Utility borrows from JPY, they pay a slightly lower interest rate (9.47 + 6.83 = 16.3%) than if

Disney borrows from JPY and French Utility borrows from the ECU (7.75 + 9.37 = 17.12%).

Therefore, it seems a good idea that Walt Disney and French Utility should be involved in

SWAP to exchange their debt.

Alternative 3

Foreign Trade Forward

Advantages:

 Instrument Standard scanning tool.

  It can be done at very low cost of stretching for 2 years.

Disadvantages:

 Mat Long Maturation has a high cost (high bid-ask broadcast)

 Vendors do not like to make any transactions of any size larger far in the future.

For Foreign Bankers will spend more money on Disney bank loans already deducted, as

banks will take on previous contracts as part of their exposure to Disney. This could prevent

Disney's continued use of credit cards to back up its trading paper.

Alternative 4:

Future Money and Options

Benefits

 Future contracts and placement options on Yen are readily available

Disadvantages
THE W. DISNEY FIRM’S YEN FINANCING 8

 General futures contracts and options usually have a maturity of less than one year.

 The options have pre-paid premiums.

 Sizes Contract sizes are small in relation to Disney's annual disclosure of ¥ 8 billion or

more.

Alternative 5

Benefits

 Having a debt defined in the Yen may result in the use of Yen royalties (interest and / or

principal payments).

Disadvantages

Such dues are hard to come by.

 Domestic Yen Bonds - Foreign companies had a hard time getting out of Japan in the

1980s; and a difficult process (1-3 months)

 Euro yen Bonds - Japan's Foreign Minister has regulated the use of Yen in international

financial transactions. Only AA or better companies can release (Disney rated as A-)

 Standard yen loan - This is possible (they still have one left)

Question 2

Answer: The various ways to fence Rolf Anderson are :

1. Election water markets and futures contracts - They are only available for a period of two
THE W. DISNEY FIRM’S YEN FINANCING 9

years or less

2. Foreign Exchange (JPY / USD) - It is a temporary period since the issuance of the Disney's

Euro dollar has grown for one to four years. Attractive yen exchange rates for less than four

years of age were hard to come by

3. Long Maturity Eurodollar Debt - Disney released Eurodollar notes recently and the company

currently has a high credit rating

4. Long-term JPY Debt - Hedge the JPY royalties, and the proceeds can be used to pay off

some of the short-term debt and split Disney debt maturity structure

5. SWAP Solution Offered by Goldman Sachs - Disney has a comparative advantage.

We can therefore conclude that there are various benefits to fencing:

1. The trend from the 1980s to 1985 shows that the yen has been declining against the Dollar (

2. Walt Disney expects to earn more money in the future in Tokyo Disneyland

3. When the proceeds are received from the Yen, it must pay its debt in Dollars

4. As in the past, if Walt Disney did not fence and the Yen continued to deteriorate, it would

translate into lower dollars in the future and contribute to its debt.

Also, the SWAP option seems to be the best option available, as at the time Disney would

be the only US Corporation second to reach the ECU Eurobond market. Its bonds could be the

first ECU bonds that include a tax payment system to pay the principal of the bond. In addition,
THE W. DISNEY FIRM’S YEN FINANCING 10

Disney had global product recognition.

Appendix
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