TEXT-Fitch affirms Walt Disney Family Museum, Calif. revs at 'A'
Nov 21 - Fitch Ratings has affirmed the 'A' rating on $56.1 million of California Infrastructure and Economic Development Bank revenue bonds issued on behalf of the Walt Disney Family Museum (WDFM). The Rating Outlook is Stable. SECURITY The bonds are an absolute and unconditional obligation of the Walt and Lilly Disney Foundation (the Disney Foundation), under a guaranty agreement with the museum. KEY RATING DRIVERS RESOURCES OF THE FOUNDATION: The Disney Foundation's robust balance sheet resources continue to provide a solid cushion relative to both the operating expenditures and outstanding debt of the museum, for which the foundation provides its guaranty. IMPROVED MUSEUM ATTENDANCE: Museum attendance and operations both improved year-to-date 2012 (fiscal year end Dec. 31) following modest attendance after the museum's opening in 2009 that was below initial projections. However, it is not envisioned that the museum's financial performance alone will ever be sufficient to cover debt service on the bonds. STRATEGIC PLAN IMPLEMENTED: The museum's engaged board of directors and experienced management team have implemented a five-year strategic plan aimed at increasing attendance, growing revenues, and reducing reliance on the Disney Foundation. CREDIT PROFILE The strength of the Disney Foundation's balance sheet remains the primary rating driver, although the market value of its investment portfolio has yet to fully recover from the decline experienced during the financial markets downturn in 2008 and 2009. The foundation's available funds (defined by Fitch as cash and investments not permanently restricted) totaled $156.6 million as of Dec. 31, 2011. Available funds provided solid 2.2 times (x) coverage of total debt ($71.9 million), including the series 2008 bonds and a non-cancellable operating lease between the museum and the Presidio Trust for about $15 million. Available funds coverage of operations remains strong at 13.8x the foundation's fiscal 2011 operating expenses of $11.3 million (or a still healthy 5.9x when also including the museum's operating expenditures). Available funds improved slightly to $159.9 million as of Sept. 30, 2012 (unaudited), though remain below the level prior to the financial crisis. As expected, the museum remains dependent on grants from the Disney Foundation to support operations. Following initial attendance that was below projected levels, this operating subsidy from the foundation was about $8m per year in fiscal 2010 and 2011. In response to lower revenues, the museum's management started to trim costs, cultivate additional philanthropic support, and strengthen attendance-based revenues through more targeted marketing and exhibits. These budgetary measures began to show some progress in fiscal 2012, with attendance and revenues both slightly ahead of plan through the nine months ended Sept. 30, 2012. The museum's five-year strategic plan calls for doubling annual attendance to 200,000 over the next five years and reducing reliance on the foundation by $2.8 million annually beginning in fiscal 2013. While Fitch has never expected the museum to become entirely self-supported, the ability to reduce dependence on the Disney Foundation will be viewed positively as it will help to preserve the foundation's financial resource base; the underpinning of the 'A' rating and ultimate security for the bonds. The Disney Foundation's only revenue sources are investment income and realized gains on investments. As was under consideration at the time of Fitch's last review in 2010, the foundation replaced its former investment managers during 2012 with a single manager. This decision was made in part based on the foundation's disappointment with its investment performance and the ability to work more closely with its new manager to make strategic investment decisions. Alternative investments comprised 17.6% of the total portfolio at the end of 2011, which Fitch views as moderate and not uncommon for foundations with like-size endowments. Despite this exposure, 2011 adjusted available funds (adjusted to exclude alternative assets) covered a still solid 1.79x of total debt and 11.4x of operating expenses. In addition to assets under management, the Disney Foundation also separately dedicates a small portion of its portfolio to a fixed-income mutual fund and stock in the Walt Disney Company. Opened in October 2009, the museum is dedicated to the life and work of Walt Disney and is located in three historic buildings in the Presidio of San Francisco. The Walt Disney Family Foundation is the sole corporate member of the museum and shares two of its three board members with the Disney Foundation. The bylaws of both foundations require that all board members be descendants of Walt Disney, reflecting their commitment to the museum's mission. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Nonprofit Institutions Rating Criteria' (June 15, 2012); --'Revenue-Supported Rating Criteria (June 12, 2012); --'Fitch Downgrades Walt Disney Family Museum's $58.2MM Rev Bonds to 'A'; Outlook Stable' (Dec. 1, 2010). Applicable Criteria and Related Research: Nonprofit Institutions Rating Criteria Revenue-Supported Rating Criteria