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Tokyo Disneyland preps for big quake with $1.3bn credit line

Park secures expanded funding from banks, enabling it to shut down six months

The Tokyo Disneyland operator's expanded credit line comes with an annual fee of 300 million yen.

TOKYO -- The operator of Tokyo Disneyland has expanded by 50% a line of credit intended to tide it over when recovering from earthquakes.

Oriental Land approached lenders last autumn over increasing an existing 100 billion yen credit line. They agreed in February to a 150 billion yen ($1.35 billion) line carrying a 0.2% annual fee of 300 million yen. The charge amounts to 0.3% of operating profit.

"It may be essential for the livelihood of an infrastructure company, but there is probably no other case of a leisure concern receiving a credit line for dealing with earthquakes," a source close to a major bank said.

The arrangement, along with bonds issued in January, will let Oriental Land shut down the park for six months while covering personnel costs and capital investment payments. The resort operator can even continue to invest in expanding the parks.

The lenders, chief among them Mizuho Financial Group unit Mizuho Bank, retain the right to subscribe to new shares in Oriental Land if a particularly large calamity precludes repayment. The additional shares would dilute Oriental Land's stock by approximately 10%.

But this right applies only if Oriental Land does not make repayment out of funds and assets on hand, and if the temblor has a magnitude of at least 7.9 and strikes within 75 km of Tokyo Disney Resort's home turf of Maihama in Chiba Prefecture.

Oriental Land has over 300 billion yen in funds on hand. "The potential of new shares that will dilute the stock is very low," a source from the company's finance and accounting group said. Furthermore, should the company draw upon the credit line, it would have 60 years to make repayments.

In 1999, Oriental Land became the first nonfinancial Japanese company to float catastrophe bonds. Cat bonds spare it from repaying some or all of the principal, based on the scale and proximity of an earthquake hitting Maihama.

When a massive temblor and tsunami devastated northeastern Japan in March 2011, planned power outages forced Tokyo Disney Resort to shut down operations for a month and a half. The disasters underscored how a major earthquake outside the Tokyo area can bring business to a halt. The credit line would mitigate the financial repercussions no matter where a quake hits.

Oriental Land is spending 250 billion yen through March 2023 to expand Tokyo DisneySea by 20%. Concerns over the risks of concentrating attractions in Maihama appear to have faded.

"The current investments in Tokyo Disney Resort will produce the highest of returns," said analyst Atsuro Takemura of Morgan Stanley MUFG Securities.

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