McDonald’s Taps U.S., Europe for Record Amount of DebtMichelle F. Davis
McDonald’s Corp. sold the most debt in its history just two weeks after its plan to boost shareholder rewards to as much as $9 billion this year triggered credit-rating reductions.
The world’s biggest restaurant chain sold $4.3 billion in debt Monday, $2 billion in a three-part sale that was its largest dollar-denominated issue since 2008, and 2 billion euros ($2.3 billion) of securities in its biggest offering in the single currency. The borrowings come as McDonald’s implements a turnaround plan aimed at reversing a sales slide as its sagging shares trail the greater market.
“It’s not the strongest credit right now, but it’s still A-rated paper,” Scott Carmack, who helps manage $1.2 billion in fixed-income assets at Portland, Oregon-based Leader Capital, said by telephone. “European rates are even lower than rates in the U.S., so it’s prudent for them to match their revenue streams in terms of currency with the liability side of their balance sheet.”
Standard & Poor’s and Moody’s Investors Service cut the Oak Brook, Illinois-based company’s credit ratings after Chief Executive Officer Steve Easterbrook on May 4 presented a company reorganization program that included returning cash to shareholders.
The company’s shares are down 4 percent over the past year, compared with a 13 percent gain by the S&P 500 Index of U.S. stocks.
McDonald’s sold $600 million in 4.6 percent 30-year bonds at a yield of 1.55 percentage points more than similar-maturity Treasuries. That’s an 18 basis-point premium to the expected yield based on secondary prices of the company’s existing bonds Friday, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
The company sold euro debt in three-parts earlier and pulled a plan to issue a fourth portion of bonds which would have matured in 20 years.
“They’ve been under pressure recently, so I think the news stories around there helped it come cheap,” Jack Flaherty, who helps oversee about $17 billion as co-manager for GAM USA Inc.’s unconstrained bond strategy, which participated in the deal, said by telephone. As a bond investor, the negative news is “not enough to discourage you. They still have a tremendous amount of assets and great free cash flow.”
The amount raised Monday is nearly the $4.5 billion S&P said earlier this month it expected McDonald’s would borrow this year as it increases leverage in a more “aggressive shift” toward shareholder returns than previously anticipated.
JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley underwrote the deal, according to data compiled by Bloomberg.
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