McDonald's plans first dollar debt sale in 18 months
McDonald's Corp., the world's largest restaurant chain, plans to sell $750 million of debt as soon as today in its first dollar-denominated issue in 18 months, according to a person familiar with the transaction.
The 10-year notes may yield 60 basis points more than similar-maturity Treasuries, and the 30-year bonds may pay a 90 basis-point spread, said the person, who declined to be identified because terms aren't set. Proceeds from the sale may be used for general corporate purposes, the person said.
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-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 is selling debt in dollars again 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 in 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 ($237 million) of notes in May, Bloomberg data show. The company last sold debt in dollars in January 2009, according to data compiled by Bloomberg.
About 40 percent of McDonald's total 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, 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 in 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, Bloomberg data show.
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.
Heidi Barker, a company spokeswoman, couldn't immediately be reached for comment.
Royal Bank of Scotland Plc, JPMorgan Chase & Co. and Bank of America Merrill Lynch are managing today's sale for the company, the person familiar with the offering said. The notes may be rated A3 by Moody's Investors Service and A by Standard & Poor's, the person said.