Dark Clouds Over Universal Orlando
What happens if you might be forced to pay a $1.5 billion debt one year from now but only have $98 million in cash on hand? It’s a question that needs to be answered for Universal Orlando!
The two main problems are trying to refinance during these dark times of recession and the domino effect that will take place if a first dept of $950 million cannot be paid by April 1, 2010 deadline. If Universal cannot pay the $950 million all other dept will come up for immediate payment and the company would need to pay another $500 million straight away. This second number is covered by Universal Studios assets, including all of its property.
Another big problem is the contract Universal has with Spielberg. He has a 22 year old contract where he gets paid a good amount of money for his consulting and the use of many of his copyrighted movies on some of the attractions.
Analysts say the due dates on the three loans are probably linked to Universal’s generous contract with Spielberg, who becomes eligible for a buyout in June 2010. (Orlando Sentinel)
One clause in this contract gives Spielberg the right to request an immediate buyout. In case Universal cannot produce a solution this scenario will come up and would bring very dark clouds over the Universal Studios.
What makes the buyout problematic for Universal’s lenders: The contract is structured so that Spielberg must be paid before any other financiers or lenders. (Orlando Sentinel)
Saving money is the message for Universal Studios and this would put a stop on any extensions or new attractions in the future. Once the new Rockit Coaster is done and The Wizarding World of Harry Potter is done, Universal Studios will not see any more changes for a long time to come.
Universal has warned in previous government filings that it could run into trouble restructuring its debt. But the company’s warnings this year are stronger and more urgent. (Orlando Sentinel)
The options for Universal Studios Orlando; Find an agreement for refinancing or find new money from the co-owners, the Blackstone Group and a subsidiary of NBC Universal. Another option would be to find new investors, but with a balance sheet this bad that could turn into a real problem.
For a full in dept analysis read the complete story on Orlando Sentinel.
Picture copyrights Universal Studios
