Dissolving the Reedy Creek District could harm Florida government finances and potentially strengthen The Walt Disney Co.’s balance sheet at taxpayer expense if executives don’t resolve a complex set of legal issues, industry analysts said after the showdown.
Reedy Creek, which governs Walt Disney World, is set to be abolished on June 1, 2023, but questions are growing about the legislation Governor Ron DeSantis signed a week ago. it in motion.
Fitch Ratings reported late Thursday that it could downgrade Florida government bonds if the state does not resolve a problem with the district’s $1 billion outstanding debt. A downgrade would mean governments would face higher interest rates to borrow money.
There are issues with the complex enterprise, including the potential violation of bondholders’ rights, an analysis by Municipal Market Analytics concluded. Analysts don’t have much to say because lawmakers haven’t provided a detailed plan for executing it.
“It’s one thing for Florida to threaten one of its local units with quick disbandment for purely political reasons,” MMA analysts Matt Fabian and Lisa Washburn wrote in a note to investors. “It would be a very different thing for the state to walk away or knowingly violate its own non-impairment covenant to bondholders. This could very reasonably lead to a downgrade in the rating of any state or local bond dependent on a contract with Florida and possibly Florida’s own bond ratings.
In a statement to investors ahead of the final vote, Reedy Creek pointed to a 1967 commitment in state law that Florida would not limit the district’s ability to collect taxes and generate other revenue to repay bondholders.
Given that promise, the MMA expects further legislation next year, noting that “while 2022 is an election year, 2023 is not” and “the possibility of being thrown down the road , or the current harsh conditions… watered down.”
DeSantis said additional legislation would be proposed to ensure Disney lives “under the same laws as everyone else,” but his office did not provide a plan.
“The bonds will be paid for by Disney,” DeSantis said Thursday night at a Fox News town hall meeting. “They will pay taxes, probably more taxes. They will follow the laws that every other person must follow, and they will no longer have the ability to run their own government, that they are the only corporation in all of Florida, the only entity in all of Florida, that has the ability to run their own government and do that.
He told the crowd to “stay tuned”.
State lawmakers voted last week to abolish Reedy Creek without conducting an economic study. They rushed the bill with just three days of deliberation, missing or ignoring the promise already made in state law to bondholders.
DeSantis said another special district could be created that the state would oversee.
“They will continue to pay to run their operations,” DeSantis said. “And that will be true if the state is in charge of a district, if it’s dissolved to the locals, whatever, that’s going to continue to happen.”
Fitch Ratings has placed Reedy Creek’s debt on “negative watch,” meaning it could downgrade the district’s credit rating. He warned Thursday of the consequences for other Florida governments if the state fails to ensure “timely reimbursement of RCID [Reedy Creek Improvement District] debt.”
“Failure to do so could alter our view of Florida’s commitment to safeguarding the rights of duty bearers and weaken our view of the operating environment of Florida governments,” the memo reads. service from Fitch.
Fitch expects the state to “resolve the uncertainty in a way that ensures the timely repayment of RCID debt, with district replenishment as an option specifically offered in the bill.”
Disney would suffer “no harm” from the dissolution of Reedy Creek and would likely see “an improvement in its bottom line and balance sheet” if the district were dissolved, according to another Deutsche Bank analysis.
Local taxpayers would absorb Reedy Creek’s $1 billion in unpaid debt, while Disney would no longer be liable for more than $100 million in property taxes it pays to provide services to Disney World, the analysts wrote. of the bank Bryan Kraft, Benjamin Soff and Connor Murphy. .
Disney’s stock price has fallen in recent months, but that could also hurt the state financially. The Florida state pension fund included 2.4 million Disney shares as of March 31, valued at more than $250 million.
As of Thursday’s market close, Disney shares were trading at around $115 per share, down 26% from the start of the year. The stock peaked at nearly $200 per share in March 2021 and has been falling ever since.
While Disney has faced a deluge of negative press, investors are also worried that streaming won’t be as lucrative as traditional television. Disney has invested heavily in streaming, launching its Disney+ platform and taking over Hulu in 2019.
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Disney will release its next earnings report on May 11.
The biggest downside for Disney if Reedy Creek is dissolved would be a loss of autonomy over its resort property, Deutsche Bank wrote the analysts. Reedy Creek allows Disney to bypass government red tape by having its own puppet government that oversees land use and essential utilities for Disney World and surrounding properties.
“This could impact the overall quality of experience Disney can provide its customers,” bank analysts wrote in a note first reported by Florida Politics. “However, we note that Disney does not have similar arrangements (at the Reedy Creek Improvement District) at its other theme parks, and those locations appear to be working very well.”
DeSantis has been at odds with Disney over his stance on what has become widely known as the “don’t say gay” law. Disney has pledged to work to repeal or overturn the law, which prohibits classroom teaching about “sexual orientation or gender identity” in kindergarten through third grade or in any way that is not “age appropriate”.
The company suspended political contributions in Florida, while DeSantis blasted Disney as a “woke” company.
Writer Steven Lemongello contributed to this report