Tags: Disney | u.s. | investment | rating

Disney Is Stronger Financially Than US

Monday, 24 Oct 2011 12:03 PM

By James Hirsen

There is a compelling sign that the growing American deficit is taking its toll on our image both here and abroad.

The Walt Disney Co. is beating the United States when it comes to investment rating.

Using a measure of risk for protecting credit investment, the Mouse House is viewed as a better credit bet than the U.S. Treasury.

The credit default swap (CDS) “spread” is a fee that is tacked on in order to ensure that the face value of a loan instrument is paid by an insurer/third party in the event of a default.

The term "swap" is used because the insurer/third-party receives the defaulted loan and collection rights to the debt.

Variety reports that Strategas Research Partners set higher CDS spreads for the five-year U.S. Treasury note than it did for Disney debt instruments.

In other words, if an investor seeks protection for a U.S. government default, the price of the protection would be more expensive than that charged for identical coverage for a Disney default.

CDS protection on the five-year Treasury note would receive a charge of 51.25 basis points (0.5125 percent) of the loan value per year, while CDS default protection for Disney would cost 48.2 basis points (0.482 percent) of the value of the loan each year.

In the event that Disney or the United States defaulted during the term of the CDS, the buyer of the default protection would collect the face value of the loan.

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