Tampa Bay Times on Disney Bond Fiasco

Stocks A to Z
1

The Tampa Bay newspaper warns about Florida’s credit ratings due to DeSantis war against the Disney Company: TALLAHASSEE — One of the nation’s leading credit rating agencies warned Thursday that if the state of Florida doesn’t resolve a conflict over its decision to repeal Walt Disney World’s Reedy Creek Improvement District and its obligation to investors, the move could harm the financial standing of other Florida governments.

Fitch Ratings posted the alert late Thursday on its Fitch Wire website, nearly a week after Gov. Ron DeSantis signed into law the measure dissolving the special taxing district that governs Disney property by June 1, 2023.

The Reedy Creek Improvement District holds nearly $1 billion in bonds…

https://www.tampabay.com/news/florida-politics/2022/04/28/di…

Would this fall under the Law of Unintended Consquences or Murphy’s Law: if it can go wrong it will go wrong?

Walt

2

Would this fall under the Law of Unintended Consquences or Murphy’s Law: if it can go wrong it will go wrong?

The greater question is will other corporations realize that contracts with the state of Florida, like tax abatements that are used to attract investment, are not secure. The state can abrogate them at will, after the company has put millions, if not billions on the ground.

Steve

1 Like
3

I must confess, I haven’t studied this issue too closely. Quick question, if I may, in this thread: besides all of the bond issues, what exactly does DIS lose if this district-thing is revoked? Is it basically that the company gets to exert control over the surrounding area of the parks/resorts? If that happens, will guests receive a bad experience? Or, does it somehow directly affect the parks as well? And is there a direct cost to the company because of all this? (I suppose we will soon hear more this work on the call)

Very odd times we live in, I have to say…

1 Like
4

Quick question, if I may, in this thread: besides all of the bond issues, what exactly does DIS lose if this district-thing is revoked? Is it basically that the company gets to exert control over the surrounding area of the parks/resorts?

The district mechanism lets Disney do several valuable things via their control of the district board:

  1. They control their zoning, land use, and building permitting directly - rather than having to go to Orange or Osceola county. In practice, this means they are essentially immune from any zoning restrictions, and can have their permitting and construction go as fast as they want.

  2. They control the construction of most infrastructure in the area - wherever they want a road to go, they can provide for that road. Their infrastructure priorities aren’t lumped in with those of the broader region - and their tax dollars aren’t either. That means Disney can pay premium taxes to get premium infrastructure, at least for the types of systems that are built by county- or city-level local governments (they don’t control the expressways that are state or federal highways).

  3. They control the provision of a number of governmental services in the area as well. Similar to above, that means that Disney can choose to have a premium level of service (at a premium price) in a way they would not be able to if they were part of a larger governmental unit.

Losing the district would mean losing the above. The first is probably the one that might have the most impact on the park experience for guests - if Disney needs to go through normal zoning approval, and normal permitting, it could take much longer to construct/renovate any particular building or attraction.

Albaby

1 Like
5

Steve,

The greater question is will other corporations realize that contracts with the state of Florida, like tax abatements that are used to attract investment, are not secure. The state can abrogate them at will, after the company has put millions, if not billions on the ground.

It’s not clear that the arrangement that set up the Reedy Creek Improvement District (RCID) constitutes a legal contract between the state and Disney (NYSE: DIS). But if it does, that actually could give Disney legal basis to challenge the law abolishing it since the federal constitution prohibits legislation that “impairs the obligation of contract” – meaning that the legislature can only terminate the contract under the provisions thereof.

That said, most state and federal contracts contain “boilerplate” language stating that the respective sovereign may terminate the contract “at will” and may recover damages if the termination is “for cause.”

Norm.

6

esxokm,

I must confess, I haven’t studied this issue too closely. Quick question, if I may, in this thread: besides all of the bond issues, what exactly does DIS lose if this district-thing is revoked? Is it basically that the company gets to exert control over the surrounding area of the parks/resorts? If that happens, will guests receive a bad experience? Or, does it somehow directly affect the parks as well? And is there a direct cost to the company because of all this? (I suppose we will soon hear more this work on the call)

The primary impact seems to be that further development within the district will require approval by the respective counties, which Disney does not control, rather than by a commission hand-picked by Disney. Thus, it will be more cumbersome.

Norm.

7

Norm, it is more complicated than just having to seek approval. Each county has their own standards and processes. The utility and land management services that serve the full Disney property would fall under different authorities, which could lead to different requirements and a loss of the resort’s homogenic aesthetic.

It is important to understand that while we think of Disney World as one large property, each of the resorts and theme parks are their own landowners, connected through the uniform governance of the RCID. When you remove Reedy Creek from the picture, all the roads, utilities and services provided by RCID become the responsibility of the two governing counties, whose responsibility is to their taxpayers, not to Disney, and who can implement changes that tear apart the fabric that unites WDW as a single vacation destination.

Now, I don’t expect Orange or Osceola counties will have an interest in that. But they will have to, by law, make decisions that are best for themselves and not for Disney. Hopefully, they will find common ground and be able to preserve the onstage experience for guests. It can be argued that it is everyone’s best interest to do so. But when governments are concerned, what makes common sense and what makes political sense can sometimes be misaligned.

Fuskie
Who notes for the time being, it is business as usual at Disney World but would expect to see an increase in Disney’s legal costs…

Premium Home Fool: Ask me a Foolish Question, I’ll give you a Foolish Response!
Ticker Guide: The Walt Disney Company (DIS), Intuit (INTU), Live Nation (LYV), CME Group (CME), MongoDB (MDB), Trip Advisor (TRIP), Vivendi SA (VIVHY), Mimecast (MIME), Virgin Galactic (SPCE), Axon Technologies (AXON), Blackbaud (BLKB)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disassociation: The views and statements of this post are Fuskie’s and are not intended to represent those of The Motley Fool or any other sane body
Disclosure: May own shares of some, many or all of the companies mentioned in this post: https://tinyurl.com/FuskieDisclosure
Fool Code of Conduct: https://www.fool.com/legal/the-motley-fools-rules.aspx#Condu…
Invitation: You are invited to interactively watch Motley Fool Live online television: https://www.fool.com/premium/live/
Call to Action: If you like this or any other post, Rec it. Better yet, reply to it. Even better, start your own thread. This is YOUR TMF Community!

3 Likes