MF 820: Management of Financial Institutions
Hong Kong Disneyland Finance
On August 10th 1999, Disney awarded the sole mandate to Chase Manhattan Bank for the Hong
Kong Disneyland financing of HK $3.3 Billion. We believe this decision was beneficial for both parties. For Chase, the rewards included underwriting fee, interest payments, being a part of a big loan-financing project in Asia and developing networks and relationships with Asian governments and companies. This outweighed the risks of underwriting risk, credit risk and long-term collateral risk. In addition, we believe it was the correct decision to initially bid to lose and then change this approach once there was concrete support…show more content…
For example, Chase offered to fully underwrite the loan on a 15-year basis and allowed Disney’s cash flow expenditures on its future expansion. On the other hand, given the volatility in Asian banking market during that
period, both the risk that Disney could get a loan, and the cost of the loan would increase as time passes. However, there are still some parts of the commitment letter that Disney should take notice on. From Disney’s aspect of view, the market flex clause might give Chase too much power to modify the syndication after they signed the commitment letter. Even though, Chase stated they had never applied the clause in Asia, they were not guaranteed to not apply it later.
Furthermore, Chase was the pioneer in the use of market flex, so they could take advantage of using it to benefit them. In order to prevent this happening, Disney should negotiate with Chase to reach an agreement that limits the extent of the market flex clause. For instance, in certain covenant, Disney could limit flex in pricing up to 10 basis points, and not permit any flex on amount of the syndication, because it would have a huge impact on the whole project. Additionally, Disney should make sure that for some key structure, and terms, Chase would come to an agreement instead of consultation with Disney before any modification.
Based on Exhibit 8, Exhibit 9 and Exhibit 10, our group would recommend the first strategy, which suggested that Chase be the sole mandate