Walt Disney's Yen Financing Case

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Harvard Business School 9-287-058 Rev. September 5, 1991 The Walt Disney Company’s Yen Financing In early July 1985, Rolf Anderson, the director of finance at The Walt Disney Company, was concerned about possible foreign-exchange exposure due to future yen royalty receipts from Tokyo Disneyland. Tokyo Disneyland, opened for just over two years, was operated by an unrelated Japanese company and paid royalties on certain revenues to Walt Disney Productions. These yen royalties had increased significantly during the last year and Mr. Anderson foresaw further growth in the years ahead. Given the recent depreciation of the yen against the dollar, he was considering various ways of hedging this exposure. Mr. Anderson had considered hedging techniques using foreign-exchange options, futures, and forwards. Also, he had thought about swapping out of existing dollar debt into a yen liability. But these choices did not appear particularly attractive, and he had focused his attention on a possible -15 billion ten-year term loan with interest of 7.50% paid semiannually. However, Goldman Sachs, who had been working with Disney on this problem, proposed a rather unusual solution. Disney could issue ten-year ECU Eurobonds with a sinking fund that would then be swapped into a yen liability at an attractive all-in yen cost. Although this seemed a rather roundabout way to create yen financing, Mr. Anderson was delighted at the prospects of costs below the yen loan. Furthermore, he could not help but wonder what factors in the international capital markets would make a deal such as this work. Do No The Walt Disney Company, a diversified international company headquartered in Burbank, California, operated entertainment and recreational complexes, produced motion picture and television features, developed community real estate projects, and sold consumer products. The

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