If Sleeping Beauty began her fabled nap today, she would awake when Walt Disney Co.'s newest bonds mature--in 100 years.
The theme park and animated film purveyor on Wednesday sold $300 million worth of the low-interest-rate bonds to institutional investors. Disney had said it planned to sell half that much--$150 million of the long-range bonds--but demand proved greater than the company had anticipated.
"It shows that people believe the Mouse will still be singing and dancing in 100 years," said Tom Deegan, Disney's vice president of corporate communications.
The money will be used for general corporate purposes, Deegan said, and for expansion plans that have already been announced, such as doubling the size of the company's Disneyland theme park in Anaheim.
The Disney bond pays 7.55% in annual interest, with the principal to be repaid in the year 2093. The 100-year bond stretches the boundaries for long-term finance to a length almost unheard of in recent years, since even the longest-dated bonds usually mature in 20 to 30 years.
Each $1,000 bond would entitle its owner to $7,555 in interest over its life.
For companies like Disney, such a bond is a chance to lock into the very low interest rates now seen in the credit market. As Disney was selling its 100-year bonds on Wednesday, the Tennessee Valley Authority increased an offering of 50-year bonds to $750 million from the planned $500 million.
TVA, the government-owned electric power company based in Knoxville, Tenn., was the first company in decades to try 50-year bonds when it went to market with a half-century issue in April, 1992.
This year, there has been a near-rush to sell what are commonly referred to as Methuselah bonds. Ford Motor Co., Boeing Co., Texaco Inc. and Conrail Inc. all have sold bonds they won't have to pay off for 50 years. Earlier this month, McDonald's Corp. sold 40-year bonds.
Until recently, the last time companies had looked to issue such long-term bonds was in the 1950s, an era of low, very stable interest rates.
The Disney bonds, managed by the Wall Street firm Morgan Stanley & Co. with Merrill Lynch & Co., carry a yield just less than a percentage point above the 30-year government bond. The relatively small premium for such a long-term corporate bond means that other companies will be tempted to issue similarly long-dated securities, analysts said.
Scott Jacobson, head of fixed-income research at Piper Capital Management in Minneapolis, said Disney's 100-year issue is too risky for his clients. But, he said, "if corporate treasurers can get away with it, why not?"
The bonds are seen as a particularly good deal for the issuers because some, like the Disney bonds, can be called, or paid off, after 30 years if interest rates fall.
Institutional investors also like the long-term bonds because they want to vary their portfolios, mixing so-called short and long bonds so they can keep a steady stream of income, analysts said. The goal for investors, and specifically pension funds, is to ensure a pile of cash to meet future needs for retirees.
"The main reason (for the demand) is that pension funds and insurance accounts are looking to match assets with liabilities," said Donald Taylor at Fidelity Investment Co. in New York.
Today's low interest rates have encouraged many issuers to pay off their outstanding bonds and refinance their debt at lower rates. Therefore the need for long-term paper by institutional investors has greatly increased.
"There is a lot of demand for long-dated paper," Taylor said. "A lot of funds are losing bonds because they are being called" by the issuers.
The impetus for Disney's 100-year bond actually came from the buyer side of the market, a Morgan Stanley official said. "We did have an inquiry from an account who was the catalyst for this transaction," said Mark Seigel, head of the corporate bond syndication department at Morgan Stanley in New York.
Disney's bonds ended up in the hands of all kinds of institutions, including pension funds, insurance companies and banks, Seigel said.
Hundred-year bonds aren't unprecedented. Railroads commonly sold them in the last century. Curtis Shambaugh, a fixed-income strategist at First Boston Corp. in New York, said the railways sold them to finance land leases that lasted for 100 years or more. One of those issues still outstanding is an 1895 offering by the Atchison, Topeka & Santa Fe Railroad and now an obligation of Santa Fe Pacific Corp. Those bonds pay 4% interest, a relatively low rate by the standards of the past quarter-century.
The last railroad to sell 100-year bonds may have been the Chicago and Eastern Illinois, a subsidiary of Union Pacific Corp., which peddled a 5% issue in 1954.
A hundred years is a mere heartbeat, however, for Canadian Pacific Corp. It has on its books a 1,000-year bond issued by the Toronto Grey and Bruce Railway that is due in 2883.
Though underwriters today may not be willing to go 1,000 years, it seems likely that they will continue to sell corporate bonds with longer maturities. "I would expect to see a few more super-long-bond offerings in coming months," Morgan Stanley's Seigel said. "Whether they be 50, 40, 100 or 75 (years) is hard to know."