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Saturday, 18 November 2017

Swiss Franc Bond: McDonald's SFr400m eight-year bond

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Lovin’ it

McDonald’s returned to the Swiss bond market in September, taking advantage of the ultra-low rates environment to print with the lowest coupon in any currency for the global burger chain.

The deal made headlines for its name, size and yield.

As one of the most recognised brands in the world, McDonald’s was a huge draw for investors, especially as its only outstanding bond in the Swiss franc market, a SFr250m 1.875% deal from 2010, was its last and had matured less than three months previously.

Although not the largest deal of the year, at SFr400m it was one of the largest single-tranche trades to come in 2016.

The yield, brought in 7bp from initial thoughts at the 0.25% level, made it one of the tightest corporates of the year, beaten only by shorter-dated or better-rated deals. At the printed level of 0.17% at par it came in line with where McDonald’s could print in its native US dollars, and inside a comparable domestic deal from Swiss retailer Coop, a rare feat for a foreign issuer, no matter how well known.

Coop has average domestic bank ratings of BBB+, in line with McDonald’s Baa1/BBB+/BBB+ ratings.

The issuer’s decision to only allow sales to Swiss money meant that, unlike some other deals printed over the course of the year, true diversification into the selected investor base was achieved, without cannibalisation by foreign asset swappers.

The deal saw huge demand with books around SFr1.5bn, nearly four times subscribed in very short order, with an extremely granular distribution to more than 100 accounts.

“It was a quick execution, as befitting a fast-food chain. The bond was massively oversubscribed in under 15 minutes as it was a rare opportunity to buy an iconic global brand,” said Stefan Boesl, director of bond syndicate at Commerzbank Zurich, which was a lead manager and bookrunner along with Credit Suisse and BNP Paribas.

Asset managers took around half of the paper, while bank treasuries and insurers took about 15% each. Private banks/retail accounts also took around 15% – an impressively large amount as they generally shun longer-dated, low-yield bonds that do not even cover their portfolio fees. It is testament to the popularity of the name that they would even consider buying at those levels.

Despite the tight pricing levels, the McDonald’s bonds tightened significantly in the secondary market. They were quoted 5bp tighter by the end of the week and came in even more by settlement – hitting a cash price of 100.95, 12bp tight of issuance, for a yield of only 0.05%.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com

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