Disneyland Hong Kong

Disneyland Hong Kong

In this case analysis I will first show the requirements the company had for its financing. Then I will

provide an analysis of the main pros and cons for Chase in connection with the deal. Lastly I will show how

both affected the pricing as well as the execution of the deal.

In order to build the new Disneyland in Hong Kong a new non-recourse entity, Hong Kong

International Theme Parks Ltd (HKITP) was formed. While the owners supported the project with substantial

amounts of equity (Disney and Government) as well as with subordinated debt (Government), Disney had

significant requirements for the financing portion of the remaining needed amount. Disney was looking to

receive bank financing for this new entity of HKD 2.3bn as a Delay Draw Term Loan (“DDTL”) plus HKD

1.0bn working capital line (“Revolving Credit Facility” or “RCL”). While they had learned from their most

recent experience with Disneyland in Paris not to have a too aggressive capital structure in place, they

nevertheless demanded significant flexibility with regard to the following terms and conditions:

- 15 year tenor

- delayed amortization structure which would start as late as 3 years after the opening of the park,

i.e. 8 years after closing of the loan and 6 years after funding of the loan

- allowed CAPEX for further expansion (instead of using FCF for amortization)

- full underwriting of the deal by up to 3 Lead Arrangers

- no subordination of management and royalties

- main collateral for the deal (land) would only become gradually available as the government first

needed to reclaim the land

Not only did Disney remain conservative with regard to the overall capital structure (see Exhibit 5 in case) but

they also chose to access the markets in 2000 in order to ensure access to funds at attractive pricing despite

having to pay commitment fees during the first two years when the DDTL was undrawn.

From Chase’s perspective this prospective deal was interesting for the following reasons. First of all

becoming a lead arranger for a syndicated credit facility always provides a revenue opportunity for the bank.

Furthermore, the new entity had a solid capital structure with 40% equity and also 43.3% subordinated debt

provided by the government. This meant that the new bank debt would be the most senior piece in and would

only make up 16.7% of the capital structure. Thus, the credit risk for any credit commitment was not too high

(at least when compared to other project finance deals). Another major factor was that one of the owners

was the Hong Kong government and it was extremely committed to make this project a success. This

commitment was shown in initial capital investments of HKD 14bn funded by the government to reclaim the

land which the park should be built on. Additionally it provided equity and the subordinated loan to the capital

structure. Overall this project was extremely important to the region since it would help to create thousands

of jobs and spur the economy which was on a downturn for the two most recent years. This high profile

support of the government as well as from Disney (since they didn’t want another problem child like Paris)

further improved the quality of the overall deal. Additionally, as a global leader in the loan syndication market

as well as a project finance provider, Chase also recognized that the Asian loan market showed signs of

recovery which should facilitate a possible syndication of such a transaction.

In addition to the deal specific attractiveness, this deal also had broader implications for