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McDonald’s Has First Dollar Debt Sale in 18 Months (Update1)
McDonald’s Corp., the world’s largest restaurant chain, sold $750 million of debt in a two- part offering, its first U.S. dollar issue in 18 months.
A $450 million portion of 3.5 percent, 10-year notes yields 55 basis point more than similar-maturity Treasuries, and $300 million of 4.875 percent, 30-year bonds pay an 85 basis-point spread, according to data compiled by Bloomberg. Proceeds will be used for general corporate purposes, the data show.
McDonald’s joins AT&T Inc., Alcoa Inc. and Kimberly-Clark Corp. in selling debt this week after second-quarter earnings beat analysts’ estimates. Oak Brook, Illinois-based McDonald’s reported a 12 percent gain in profit on July 23 as it attracted more customers with its frappes and smoothies. The company sold bonds in dollars after issuing in foreign currencies to alleviate the effects of currency fluctuations.
“Wherever possible, we seek to minimize the economic or cash flow impact of fluctuating exchange rates by sourcing in local currencies, utilizing foreign-denominated debt, hedging a portion of our foreign royalties, and reinvesting profits back into local markets,” Chief Financial Officer Peter Bensen said on the company’s July 23 earnings call.
McDonald’s sold 300 million euros ($390 million) of debt in June 2009, and 250 million Swiss francs ($236 million) of notes in May, according to data compiled by Bloomberg. The company last sold bonds in dollars in January 2009, Bloomberg data show.
Foreign-Currency Debt
About 40 percent of McDonald’s debt is denominated in foreign currencies, the company said in a July 23 regulatory filing. The euro, British pound, Australian dollar and Canadian dollar account for 70 percent of its operating income outside the U.S., according to the filing.
“At current foreign currency rates, the company expects foreign currency translation to negatively impact full year diluted earnings per share,” McDonald’s said in the filing.
Among foreign currencies, the company is most exposed to the euro, which accounts for about 25 percent of consolidated operating income, Bensen said on the July 23 conference call.
McDonald’s has $187 million of debt maturing this year, $611 million in 2011 and $926 million in 2012, Bloomberg data show.
In January 2009, McDonald’s issued $400 million of 5 percent, 10-year notes and $350 million of 5.7 percent, 30-year bonds, the data show.
Trading Prices
“We’re taking advantage of favorable conditions and extremely favorable rates,” Lizzie Roscoe, a company spokeswoman, said of today’s offering in an e-mail.
The 5 percent notes due in 2019 traded at 111.66 cents on the dollar on June 29 to yield 3.42 percent, or 44.9 basis points more than benchmarks, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. A basis point is 0.01 percentage point.
Royal Bank of Scotland Plc, JPMorgan Chase & Co. and Bank of America Merrill Lynch managed today’s sale for the company, Bloomberg data show. The notes may be rated Aa3 by Moody’s Investors Service and A by Standard & Poor’s, the data show.
To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net
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