Walt Disney’s Credit Rating Downgraded

Walt Disney Co. was given a dose of grade deflation Friday when credit-rating firm Standard & Poor’s knocked its long-term corporate credit rating out of the A levels for the first time.

Disney’s downgrade to BBB-plus from A-minus comes as the company continues to suffer from disappointing theme park attendance, soft ratings at its ABC network and a financial hangover from the $5.2-billion purchase of cable network Fox Family Worldwide last year.

S&P; followed through on a threat to downgrade first issued in August, shortly after the Burbank entertainment giant warned that its profit would be worse than Wall Street expected.

Another credit-rating firm, Fitch Ratings, already has downgraded Disney. Moody’s Investors Service has warned that it may take similar action.

In lowering the rating, S&P; said it believes Disney’s free cash flow--cash it could theoretically use to cut debt--”may not recover dramatically until fiscal 2004.”

It added that Disney’s dividend on its common stock is likely to limit its ability to cut debt as well. Disney’s board declares the dividend annually. Last year, it was 21 cents a share.

A lower credit rating can be damaging because it can make borrowing money more expensive for a company. S&P;’s move also hurts Disney’s efforts to convince Wall Street that the company is turning around.

Despite the lower rating, Disney’s debt remains investment grade, which means it is considered a relatively low risk. Disney had $13.1 billion in debt as of June 30.

“We don’t see particular pressures that would suggest a further downgrade,” said S&P; analyst Heather M. Goodchild.

S&P; also affirmed Disney’s short-term credit rating at A-2.

Disney said it is reducing its debt load, has one of the world’s most-recognized brands and would continue to grow by using prudent management and investments.

“We see this rating action by S&P; as the result of short-term business conditions, and we remain optimistic about the prospects for the Walt Disney Co.,” Disney said.

Disney’s stock fell 95 cents to $15.05 a share in trading on the New York Stock Exchange. It has fallen 27% this year.