Euro Disney debt default likely

Theme park operator Euro Disney was facing fresh financial troubles last night after admitting that it was likely to breach some banking covenants because of lower than expected visitor numbers.

The company said it had been hit by the downturn in European travel and tourism, the recent spate of strikes that have paralysed France and the weak economy in its main markets. It is abandoning previous forecasts for theme park attendance and hotel occupancy for 2003 and 2004.

Revenues in the most recent quarter fell by 7% to €275.6m (£197m).

In a statement, the company said that as a result of the downturn it "does not expect to be in compliance with certain bank covenants for [2003-04]". It is in discussions with its banks and Walt Disney, which owns 39% of the business, to restructure its loans or secure extra financing.

If it failed to do so, it would not be able to repay its debt obligations, starting with the repayment of a €168m line of credit from Walt Disney, due in June next year, or sooner should its lenders accelerate repayment of $1.7bn in debt.

The company expressed confidence that the financing would be secured. Chairman and chief executive André Lacroix said he remained "optimistic" about the growth of Disneyland in Paris.

"We need to rebalance our financial structure over the coming months. And we believe that our consistent history of delivering solid operating performance will be the foundation upon which the company, our lenders and Walt Disney seek to reach a mutually acceptable resolution to our future financing needs."

Walt Disney has waived royalty payments for the last three quarters of 2003 and deferred payment of 2004's until the following year.

The picture was rosier in Burbank, California, where Walt Disney posted third quarter profits of $400m, up from $364m a year ago, despite a similarly poor performance from its US theme parks. Revenues climbed from $5.8bn to $6.2bn.