The lowered ratings means Reedy Creek may have to pay slightly higher interest rates on infrastructure bonds in the near future. As the economy and the balance sheet of Walt Disney World improve, Reedy Creek could win a higher grade.

S&P is giving $200 million in road construction bonds an A, down from A-plus. Another $500 million in utility revenue bonds is getting an A-minus, down from an A.

The downgrade follows a similar lowered ranking on Burbank, CA-based Walt Disney Co. itself on Sept. 20. S&P lowered Disney's corporate credit rating to A- minus from A; short-term corporate credit rating, A-2 from A-1; senior unsecured debt, A-minus from A; commercial paper, A-2 from A-1; senior unsecured shelf debt (preliminary), A-minus from A; and subordinated shelf debt (preliminary), BBB+ from A-minus.

Reedy Creek's downgrade is based on a potential near-future lowering again of Walt Disney Co.'s debt instruments. Walt Disney World is Reedy Creek's biggest customer, accounting for 85% of the utility system's operating revenue.

Disney's senior debt rating was placed on S&P's CreditWatch with negative implications Sept. 20 because it "reflected the increasingly difficult business environment for Disney's advertising-driven media businesses and theme parks" following the Sept. 11 terrorist attacks on New York and Washington, DC, the rating company explains on its Web-site analysis. Disney's large-share repurchase plan, announced Sept. 20, also figured into the lowered ratings.

"Standard & Poor's will monitor the potential negative effect that the possible downgrade of Walt Disney Co., the district's dominant utility customer, may have on the historically strong financial and debt positions of the district and its utility revenue bonds," the rating company says in its analysis.

Reedy Creek Improvement District provides electric, water, wastewater, solid waste, gas and hot and chilled water services to Walt Disney World.

On Disney's own downgrade recorded on Oct. 15, S&P says it was based "on the expected increase in financial risk from the company's planned acquisition of Fox Family Worldwide; the $50 million share repurchase Disney announced Sept. 20; and Standard & Poor's concerns regarding the economic effect on Disney's resort and theme park business, as well as its advertising-driven businesses following the events of Sept. 11."

The ratings company notes Disney's businesses "already were under pressure prior to Sept. 11 as a result of a weakening economy and lower audience ratings at the ABC television network." S&P acknowledges Disney is "taking steps to cut costs and rein in capital spending."

But these efforts "suggest an extended period with higher leverage, absent significant de-leveraging measures," S&P says.

The pro forma for the Fox Family acquisition, "assuming a fully debt-financed deal, and for the recent large share repurchase on June 30, gross debt to cash flow is about 3.2 times (net debt to cash flow, 2.9 times), compared with the 1.9 times level for both measures at the fiscal year ended Sept. 30, 2000," S&P says.

Still, New York-based Standard & Poor's says Disney's ratings "reflects its very strong market positions in television, cable and filmed entertainment; its dominant position in the theme park business; and the creative properties that fuel its consumer products and licensing unit."

S&P says Disney "enjoys an increasingly global reach and exhibits a moderate financial profile." The rating company says that "while the travel and leisure business and the media business will continue to face uncertainty, as a result of a weaker economy, Disney's well-diversified business base has some offsetting areas of strength in DVD sales, the performance of parks outside the United States, and upcoming promising film releases."

Standard & Poor's projects Disney's near-term earnings concerns "will related to park attendance and spending, and cyclically sensitive advertising demand."

Additionally, the ABC network "will have to develop successful new shows in order to recoup lost audience share," S&P says. "Capital needs should continue to taper off, and management continues to take operating cost reduction measures."