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 for 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 37.2% in the

year 1984 to $ 1.8 b. Complete recreational with leisure revenue, with royals from Disneyland

Tokyo’s branch, raised by 6% to $ 1.15 b in the financial year 1984. Complete revenue

reached $ 98.87 m, a rise of 6.5%. T. Asset increased by 15% to $ 3.71 b in the ending year.

In 1985, Mr. Anderson, C.F.O at The W. Disney firm, was worried about external

interchange earnings due to Yen acceptance from Disneyland Tokyo’s branch, rising sharply

last year ( ￥ 7.99b), and the firm saw continued growth (10% - 20%) in the future years. a

decrease of about 7.9 % from last year's figure of 228.70 is also an issue.

To decrease the danger of overseas trade, w. Disney has two options. 1st, the firm was

expecting an $ 18.9 b credit, paid to the principal for final growth, which needed an annual return

rate of 7.80% and a foreclosure of 0.85%. Second, Goldman put forwarded to manage for W.
THE W. DISNEY FIRM’S YEN FINANCING 4

Disney and French use to go into exchanges, mediated by the IBJ bank, where the system will

take ECU dues in interchange for future Yen receiving, while Disney will take the currency

credit in interchange for timely receipts.

The Firm 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

Answer. The firm needs $ for building and growth purposes but not much exposure to the YEN

cash series. So, the firm needs to move YEN to USD. Because the amount of money earned in

Japanese currency is big, the decrease in Japanese currency could crucially affect Disney's

financial plans. Given the Japanese to U.S. changes rate fluctuations, this is a major exposure

that needs to be rounded up. In the future long-term trend, if the announcement of Japanese is

below expectations, it will damage the firm's system. So, a reasonable fence is the best solution
THE W. DISNEY FIRM’S YEN FINANCING 5

to cover the coming 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 year 15 billion ten-year loan

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

percentage and the profit that will be used to pay other dues and split Disney's debt maturity

structure.

Total cost of this Japanese period loan:

Internal Rate of Return = 3.805% half-year

Total yearly cost of Japanese Loan term = (1 + 3.80413%) 2-1 = 7.754%

Alternative 2

Solution given by Goldman

Eurobond

Another solution, given by Goldman, is that firm has issued a 10y Eurobonds of 80 m 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.

IRR = Total Cost of ECU Eurobond = 9.47% ECU / YEN SWAP

After issuing the Eurobond, Disney needs to REPLACE ECU debt to YEN credit to achieve the
THE W. DISNEY FIRM’S YEN FINANCING 6

goal of securing future YEN receipts.

In finance, the exchange is based on another when two partners agree to interchange one flow

of cash flow into another flow. Interchanges can be used to stop definite dangers such as returns

rate risk or to think about changes in decreased prices.

Interchanges are popular and useful, as they can benefit both contract partners. Exchanges can

benefit both firms if companies in different regions have relative supremacy at return rates. In

such a case the party pays/gets stable interest on currency A to obtain/pay the stable rate on

currency B for N years. For example, you pay Japanese 1.5% for Japanese ideal for 1.21 b and

receive U.S. dollar 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:

Japanese Loan Eurobond loan

W. Disney (rated A) 7.76% 9.48%

French advantage (ranking AAA) 6.85% A 9.38% 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 the French advantage has benefits in both financial

liabilities, but the firm has relative-benefit in the ECU. If the firm takes from the ECU and the

French advantage takes from Japanese, they pay a slightly lower return rate (9.47 + 6.94 =

16.4%) than if Disney takes from Japanese and French advantage borrows from the ECU (7.76
THE W. DISNEY FIRM’S YEN FINANCING 7

+ 9.38 = 17.14%). Therefore, it seems a better idea that the firm and French advantage should

be complexed in SWAP to interchange their dues.

Alternative 3

Foreign Trade Forward

Advantages:

 Instrument Standard scanning tool.

  It can be done at the 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

 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 about 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 different ways to fence Anderson are:

1. Election water markets and futures contracts - They are only available for two years or less

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

Eurodollar has grown for one to four years. Engaging yen exchange rates for less than 4 y of

age were hard to come by

3. Long majority Eurodollar dues - Disney released Eurodollar notes recently and the company

currently has a high credit rating

4. Future Japanese dues – Protection of the JPY percentages, and the earnings which can be

used to pay the short term dues and split Disney debt full growth network

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,

Disney had global product recognition.

Appendix
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