While tough marketing conditions this week have sidelined many prospective issuers, McDonald’s Corp. today launched a $1.5 billion, three-part offering, after inking a similar structure one year ago. The new offering was split evenly across $500 million each of five-year notes due April 1, 2023 at T+75, 10-year notes due April 1, 2028 at T+100, and a tap of the existing 4.45% notes due March 1, 2047 at T+140, sources said. Launch levels imply reoffer yields of roughly 3.35%, 3.81%, and 4.46%, respectively.
McDonald’s launched the deal at the firm end of guidance (which was set in the areas, plus or minus five basis points, of T+80, T+105 and T+145), and 15–20 bps through early whispers. Even so, McDonald’s appears on track to pay 5–10 bps of new-issue concession to clear today’s offering in heavy markets.
The 4.45% 2047 tap is projected to be placed at a yield close to the coupon rate. The deal was originally printed in March 2017 as a $550 million offering at T+137, or 4.48%. The issue traded earlier today at a G-spread of 142 bps, or roughly 10 bps higher than levels on Monday, according to MarketAxess.
That 30-year tranche was part of a $2 billion, three-part deal that also included 2.625% five-year notes due January 2022 at T+62, or 2.639%, and 3.5% 10-year notes due March 2027 at T+107, or 3.562%. For reference, the 2022 issue changed hands this morning G-spreads from 58–60 bps, before accounting for roughly six basis points on the curve, and the 2027 notes traded last week at G-spreads in the area of 86 bps, and roughly three basis points wider today, trade data show.
Cautious marketing of the new bonds follows on a staggering $64.2 billion of high-grade offerings placed over the five sessions through Monday, including big M&A deals inked by CVS Health last Tuesday ($40 billion, or the third largest corporate offering on record) and Campbell Soup on Monday ($5.3 billion). That rolling sum was less than $5 billion shy of the of the all-time record for any five-day period, or the $68.8 billion placed in the five sessions around a $46 billion M&A-driven behemoth inked by Anheuser-Bush InBev in January 2016, according to LCD.
At the tail end of the latest issuance deluge, borrowers on Monday paid roughly 12 bps in new-issue concessions, on average, rivaling the extra costs witnessed in the immediate aftermath of the shock Brexit vote in June 2016.
Proceeds from today’s offering will be used for general corporate purposes. Of note, the company has $750 million of 2.1% notes coming due on Dec. 7, 2018, followed by $400 million of 5% notes due in February 2019, according to S&P Global Market Intelligence.
In March 2017, the company announced that it would return $22–24 billion of cash to shareholders through 2019. Last July, it announced a new $15 billion share-repurchase program, which does not have a specified expiration date. McDonald’s in 2016 completed an accelerated share-repurchase program and bought back a total of $11.2 billion of its shares over the calendar year. That was up from $6.1 billion in 2015, and is by far the most in the company’s history, according to S&P Global Market Intelligence. Buybacks in 2017 amounted to $4.7 billion.
The Oak Brook, Ill.–based restaurant company’s ratings profile includes stable outlooks on all sides.
In December 2017, Fitch affirmed its BBB rating on the company. “McDonald’s ratings balance its shareholder-friendly financial strategy with its substantial cash flow, significant scale, improved comparable sales (comps), and Fitch’s view that the company will maintain total adjusted debt/EBITDAR in the mid-to-high 3.0x range while generating FCF of about $1 billion or more annually,” analysts said.
S&P Global Ratings maintains a BBB+ rating for the company. “We also believe McDonald’s will moderate share repurchases over the longer term while continuing to work to return revenue growth and customer traffic. We assume the company will maintain leverage of less than 4x, supported by the range of initiatives that began in 2015. Still, the competitive environment is fierce for the quick service restaurant sector overall,” the agency said in ratings rationale published in April 2017. — Gayatri Iyer/ John Atkins