The Walt Disney Co. is stepping in to take over the debts of its Disneyland Paris resort in an attempt to put it on a sustainable financial footing after 20 years of disappointing results. The Burbank, Calif., entertainment giant, which owns just under 40% of the French company that operates the resort, Euro Disney SCA, will be providing 1.33 billion euros ($1.7 billion) under a refinancing deal. In doing so, it will take over the debt currently held by a syndicate of banks, primarily France’s state-owned Caisse des Dépôts et Consignations.
The announcement comes a month after TIME revealed that Disney was looking for ways to boost the profitability of Disneyland Paris, which is celebrating its 20th anniversary this year. The resort is Europe’s largest tourist attraction, drawing more than 15 million visitors annually. But it has suffered from chronic financial weakness since it opened in 1992 because of its heavy debt of about $2.2 billion. The resort has incurred a net loss for 12 of its 20 years in existence. Sources close to Disney told TIME in August that one option under active consideration was for the U.S. parent company to buy out the French firm entirely. For the moment, at least, Disney has preferred to opt for full debt restructuring.
Disney has a major interest in the resort becoming more profitable because it derives revenue from the European venture’s management fees and royalties. Because of the resort’s financial weakness, however, Disney has had to waive, defer or reduce those fees for most years of Disneyland Paris’ existence.
Under the refinancing, Disney will make a loan of 1.23 billion euros ($1.6 billion) in addition to a revolving credit facility of 100 million euros ($130 million), which will run until 2017. Both elements are unsecured. The loan, carrying an interest rate of 4% — compared with the average of 5.1% that the French company currently pays — will cut its interest costs by 45 million euros ($58.8 million) over the next five years. Euro Disney said in a statement that the refinancing would give the resort “greater operational flexibility by removing the restrictive covenants under existing debt agreements, notably those related to restrictions on capital expenditures. Moreover, the extended maturity of the total debt to 2030, together with a more gradual debt-repayment schedule, will better position the group to invest in long-term growth and drive value for all shareholders.”
Internally at Disney, the fate of Disneyland Paris is seen as especially significant because two of the leading contenders to succeed Robert Iger as chairman and CEO have been closely involved with the French resort: chief financial officer Jay Rasulo, who oversaw a financially disastrous expansion that coincided with a European recession, and Thomas Staggs, who is chairman of the Parks and Resorts division.