Abstract
Disney has issued a 100-year bond, and an investment analyst is trying to value it. Duration, credit risk, and term structure are all important concepts that are used in the analysis of the case.
Excerpt
UVA-F-1063
THE WALT DISNEY COMPANY:
100-YEAR BONDS—SLEEPING BEAUTIES?
On Thursday, July 29, 1993, a tombstone announcing the issuance of $ 300 million of Walt Disney Company bonds maturing in the year 2093 appeared in the Wall Street Journal. It was an additional reminder to Julie Whittaker that she needed to make a decision about these new super-maturity bonds.
As a recently appointed bond analyst with the investment division of the Mutual Assurance Insurance Company, Whittaker had originally heard that $ 150 million of the bonds were to be issued but that strong demand had resulted in Disney's doubling the amount. Whittaker had to decide today whether Mutual should add the Disney 2093 bonds to its portfolio. A graduate of the Darden Graduate School of Business Administration at the University of Virginia, Whittaker had never analyzed a bond of comparable term, but she felt confident that the techniques of bond valuation would still be applicable. As she began her analysis, one bond analyst's comment on the issue stuck in her mind: “...forty years earlier, a 100-year bond issued by IBM might have been even more plausible [than the Disney issue in 1993], and how happy would those [bond] holders be now?”
The Walt Disney Company
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