Who owns the Magic? Disney or the bank?

[Snowwhyt]

Does anyone think the Magic is PIF? Or is Disney still tearing out payment slips from the booklet and slipping it into an envelope with a check?
How long do you pay on a ship?

 

[luv2cruisedisney]

Obviously, I am not privy to DCL's books but when the Dream and Fantasy came out there were several discussions about how long t would take to pay them off and the general consensus was not very long. So, I would be willing to bet that the Magic and Wonder have both been paid for for quite a while

 

[cvaska]

Given that the Dream class ships are often said to have been paid off in less than 3 years, I would bet the Magic class has been paid off for atleast a decade, maybe 15 years

 

[kiford]

I don't know about the Magic and Wonder although I would presume that they have long since been paid off but from the 2017 annual report:

"In October 2016, the Company entered into two credit facilities to finance two new cruise ships, which are expected to be delivered in 2021 and 2023. The financing may be used for up to 80% of the contract price of the cruise ships. Under the agreements, $1.0 billion in financing is available beginning in April 2021 and $1.1 billion is available beginning in April 2023. If utilized, the interest rates will be fixed at 3.48% and 3.74%, respectively, and payable semi-annually. The loans will be repaid in 24 equal installments over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees."

It appears from other parts of the annual report, that the remaining 20% is in cash.

 

[cruiser21]

I'm surprised they need to finance it.

 

[BartmanLA]

Any capital investment like a cruise ship isn't paid for by plonking down a suit case full of cash, there's so many entities that are involved in any kind of production of something like a cruise ship, marine architects, designers, ship yard construction, the myriad of suppliers of everything from furniture to wallpaper, to light fixtures, bathroom etc.. it's endless and each one has their own contract with the company building the ship, once the construction is finished and the ship passes it's sea trials then and only then does DCL take delivery, so the financing is a massive undertaking not just a single sticker like a new car.

 

[cruiser21]

Any capital investment like a cruise ship isn't paid for by plonking down a suit case full of cash, there's so many entities that are involved in any kind of production of something like a cruise ship, marine architects, designers, ship yard construction, the myriad of suppliers of everything from furniture to wallpaper, to light fixtures, bathroom etc.. it's endless and each one has their own contract with the company building the ship, once the construction is finished and the ship passes it's sea trials then and only then does DCL take delivery, so the financing is a massive undertaking not just a single sticker like a new car.

I wasn't implying they would plonk down a suitcase of cash. You can still sub contract out all that stuff and still pay cash...not actual physical cash.

 

[Cruising Engineer]

I think the Mouse has deep pockets.

 

[RAD]

Maybe he put it on the Disney Visa card to get the 1% Disney money?

 

[Maggie'sMom]

Maybe he put it on the Disney Visa card to get the 1% Disney money?

 

[Doofenshmirtz513]

I'm surprised they need to finance it.

You finance it because it increases your return on capital and lowers your capital risk on the investment. It's better from a business perspective to do the financing than to pay cash, even if you have the cash on hand, assuming you can get decent financing terms. Plus, the Disney Cruise Line subsidiary probably doesn't have that kind of cash on hand.

 

[Malestrom Troll]

Large conglomerates don't have billions in cash reserves. They could issue more shares but that would dilute their stock and have even more costly ramifications. Getting an interest rate under 4% is a way better financial decision.

 

[CM Dad]

Maybe he put it on the Disney Visa card to get the 1% Disney money?

Wouldn's Disney pay the annual service charge to got the premier card so that they could get 2% back?

 

[rcchello]

A company that sits on a lot of cash (the price of a cruiseship) becomes a takeover target, so companies keep their money invested in the business of making money. Operating a Disney cruise ship makes greater that the interest they are paying or they wouldn't be building them and definitely more than if they were buying bonds.

At least once in the past Disney was sitting on lots of cash and companies were looking at buying them so they could strip out the cash and then sell what was left.

 

[DCSWO]

Large conglomerates don't have billions in cash reserves. They could issue more shares but that would dilute their stock and have even more costly ramifications. Getting an interest rate under 4% is a way better financial decision.

Except Apple...

 

[RAD]

Wouldn's Disney pay the annual service charge to got the premier card so that they could get 2% back?

The Meyer Werft shipbuilders don't fall into any of the 2% categories.

OT: That said, I really can't figure out why someone would pay the $49 per year when there are cards out there that don't have a fee and will pay 2% cash back on everything. I can see the no fee card for the 6 months no interest on some Disney purchases but other then that I don't get it (and yes I had one and cancelled it when the first annual fee charge showed up).

 

[Snowwhyt]

So then the Magic and Wonder are PIF and they use cash on hand to replace/refurbished/update as needed?
So if...

....from the 2017 annual report:
"In October 2016, the Company entered into two credit facilities to finance two new cruise ships, which are expected to be delivered in 2021 and 2023. The financing may be used for up to 80% of the contract price of the cruise ships. Under the agreements, $1.0 billion in financing is available beginning in April 2021 and $1.1 billion is available beginning in April 2023. If utilized, the interest rates will be fixed at 3.48% and 3.74%, respectively, and payable semi-annually. The loans will be repaid in 24 equal installments over a 12-year period from the borrowing date. Early repayment is permitted subject to cancellation fees."

would that be the case for the Dream and Fantasy? Or is they still on the payment schedule? Or did they pay it in advance to secure the new loan? 12 years that's amazing!

 

[Doofenshmirtz513]

So then the Magic and Wonder are PIF and they use cash on hand to replace/refurbished/update as needed?
So if...
would that be the case for the Dream and Fantasy? Or is they still on the payment schedule? Or did they pay it in advance to secure the new loan? 12 years that's amazing!

I'll speculate a little based on the annual report excerpt and my knowledge of financings from a different field (where I'm not a finance guy but am involved in such transactions).

Whether the Dream and Fantasy are paid off or not is only indirectly relevant to financing the new ships. Typically, a large purchase like this is financed based on the expected revenues of the new ship only. Disney and its lenders expect expect each new ship will bring in some amount of revenue per year that will be enough to cover the cost of operation of the ship, the finance cost, and a profit for the company.

The financing is likely structured so that only the new ship is supporting the loan - meaning Disney Cruise Line, Disney (as the parent company), and the other ships are not expected to provide funds to repay the loan and are not on the hook to make payments if, for some reason, the new ship doesn't produce enough cash flow to meet its obligations (there could be a guarantee in there, too, but that's getting more complicated). So the Dream and Fantasy are relevant for secondary reasons to meeting the loan repayment obligations (such as showing that Disney can make money operating cruise ships, or providing the cash for Disney's 20% of the cost).

Hope that helps.