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Disney Sells Bonds, Plans to Buy Stock

The Walt Disney Co. last week was the first large corporation to issue debt after the four-day shutdown of the financial markets — selling about $1 billion in bonds — but analysts are skeptical that the move would provide a needed boost to corporate bond trading.

Disney issued about $500 million in 3.9-percent, two-year notes and $500 million in 4.5-percent, three-year bonds last Monday, the first day of trading after the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.

Disney said the offering's proceeds would be used to buy back its own stock and to help finance acquisitions, including an earlier $5.3-billion deal to purchase Fox Family Worldwide Inc. Goldman Sachs & Co. Inc. was the lead manager.

The sale was characterized as a "bought deal," in which the lead manager buys the bonds and resells them at a later time. According to one bond-market observer, a number of money managers had requested that the deal be put together.

In an effort to prop up the market following the terrorist attacks, the Securities and Exchange Commission temporarily eased restrictions on stock buyback programs.

"We thought it was important to be out in the market," said Disney spokeswoman Christine Castro. "It's a show of confidence in our own company and in the market generally."

Despite that vote of confidence, Sept. 17 was a dismal day for the stock market. The Dow Jones Industrial Average fell a record 684.8 points.

Disney stock was hit particularly hard — down 18 percent, or $4.33, on Sept. 17 — as investors worried about the slumping advertising markets and wondered whether the terrorist attacks would affect travel to theme parks.

Disney stock was down another 85 cents on Sept. 18, closing at $18.40.

Despite published reports that the Disney deal could serve as a catalyst for the bond market, some analysts were unsure. And while some hoped lower interest rates would boost bonds, Salomon Smith Barney Inc. high-yield analyst Stevyn Schutzman said that effect might be felt more over the long term.

Last week the Federal Reserve Board lowered rates for overnight loans between banks by one-half percentage point, to 3 percent.

The European Central Bank and the Bank of Canada also agreed to lower rates, which should help international deals.

But Schutzman said investors are looking more at the effect of the sluggish advertising market on media companies like Disney than on interest rates.

"Anybody that has a direct impact [from] advertising revenue, it's going to be tough to get a bond off at a good level," Schutzman said. "The short-term view is [that] it's going to be painful in here. In the long term, I still want to be in this sector more than anything else."