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McDowngrade: S&P Cuts 'Releveraging' Junk Food Vendor's Debt To Almost Junk
Having told the world that it will borrow billions (and cut capex) to "return all free cash to investors," it appears ratings agency S&P just needed to remind McDonalds that Shareholder-friendly releveraging no longer comes for free...
- *S&P LWRS MCDONALD'S RTG TO 'BBB+' ON SHR BUYBACK PLANS
Who could have seen that coming?
Here's why... (via S&P)
McDonald's announced its intent to return an additional $10 billion to shareholders by the end of 2016, substantially funded by debt.
We are lowering the corporate credit rating to 'BBB+' from 'A-' since the company's various credit metrics will now be measurably worse than our previous expectations.
Our assumption is that debt to EBITDA will rise to the low- to mid-3x range during 2016-2017 versus around mid-2x previously.
The outlook is stable, reflecting our view that there will be continued progress in the U.S. and that credit metrics will not rise above 4x over the next two years as the company balances further share repurchases and a substantial dividend with the timing of success in the business turnaround.
- *MCDONALD'S BOOSTS HOLDERS CASH RETURN TARGET BY $10B OVER PRIOR
- *MCD SEES CASH RETURN TO HOLDERS ABOUT $30B 3 YR PERIOD END '16
- *MCDONALD'S: MAJORITY $10B OF CASH RETURN FUNDED BY ADDED DEBT
- *MCD SEES CAPEX DECLINING OVER TIME
- *MCD SEES RETURNING ALL FREE CASH TO INVESTORS IN THE LONG TERM
* * *
It is notable how quickly S&P jumped on this - immediately slamming companies for aggressive shareholder-friendly releveraging.. as we noted previously,
Until recently, rising corporate leverage was primarily the result of companies desire to bolster shareholder value at the expense of bondholders —issue bonds and buy stock or issue bonds and buy a company. But in recent quarters declining earnings have been an important reason for the upward trend (Figure 4).
The 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general.
But there are signs that this may be changing.
Given that we are clearly moving into a higher default environment we believe that equity investors may be inclined not to reward stocks that have large buyback programs. And if this is the case, corporate managers will have a diminished incentive to borrow money to finance buybacks.
* * *
Got it. So what Citi is saying is that now that corporate leverage is at record levels, the game is officially up and once the defaults start and the cost of capital begins to rise, no sane equity investors (of course nowadays the idea of a "sane" or even a "human" equity investor is an oxymoron) will ever buy into the story nor even think about throwing money at a secondary.
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Kill the ginger! It has no soul!
Hint to eco-tard girly man CEO: Use LARD to make fries. They're delicious that way.
Rotten Ronnies reduced to Junk... Junk food, Junk Bonds, more than 1 Trillion served.
McCancer
GIGO: Garbage In Garbage Out, amigo.
If the Rounded-Up GMO-laden insectisided potatoes, preservative-pumped, flash frozen, and aged for millennia, are shit - you can fry 'em up in organic botique heritage lard from "Jerkoff Farms" (thanks to a ZHer for that one), and it will still taste like shit.
Oh I dunno, you blind taste test fries made with lard vs with industrial vegetable oil I suspect you'd get 95% approval of the larded ones. Humans love animal fat.
Yes, I love animal fat, and no, I will never blind taste-test anything not made from scratch by people I don't know.
An addendum for coffee... you wonder why a lot of people sugar the hell out of their coffee? Cuz it's shit coffee. Good coffee is enjoyed by its self, or with a bit of milk or cream, and optionally, a very small quantity of sugar, just enough to taste.
My stock answer to the question "Do you want (insert revolting sugery flavor) in your coffee?
Is: "No, coffee alreayd has a flavor. It's 'coffee'".
Have you tried lard in your Costco preground decaf yet?
Penny: This cobbler is great.
Mary Cooper: Well, you know what the secret ingredient is.
Penny: Love?
Mary: Lard.
So yes, Junk pretty much describes their food, so their bonds are well inline now.
"i'm lovin' it"
They will now change their $1 menu to the $2 menu.
They've gone full hipster in London http://www.mcdonalds.co.uk/content/ukhome/promotions/signature-collectio... complete with brioche bun for $7 USDE.
They should have a "Junk" menu. That way one would never be dissapointed after buying one of their meals.
So they can 'return' $10 billion to shareholders by borrowing money but yet can't afford to increase the minimum wage. So the people who do the actual daily work versus those have extra funds laying around to make money on those who do the actual work. I don't remember shareholders serving me food. Well, I'm sure the down votes will commence.
What part don't you get about entry level jobs?
Dr. Engali, the concept of entry-level jobs was lost years ago. Our economy no longer operates under the old, well-established rules...such as the whole entry-level jobs thing...
Yes, it WAS a place for new workers to get their feet wet in the labor market, it was never supposed to be a CAREER.
But somehow, it IS, for more and more people. And it is also becoming a dumping-ground for people WITH other qualifications who cannot find work in their fields.
You can't use the same measurements when all the metrics have been changed.
Exactly.
Thought they changed your name to "Moland Springs" after the merger.
They used to be entry level when there was an upward path in America. They took the ladder away and now there are no jobs further up the scale. Entry level is now the only job in america and it leads nowhere.
Once again: McDonalds corporate does not set the pay rate for franchisees.
Please don't confuse the economic illiterates with facts.
Commence with the downvotes.
why woudl anyone downvote you? Too much common sense in your comment I guess
A lot of people, apparently including those who run McDonald's corporation and many of their franchisees, don't realize that a lot of the same sort of people who eat at McDonald's are the same people who work there. They seem to think their businesses exist in a vacuum.
A lot of people, apparently including those who have never owned a franchise, don't realize that MCD employees are probably less than 1% of the customers. They seem to think that the employees are the only customers of the business
Yes, it makes so much sense to pay unskilled workers $15/hr while the rest of the market is paying them $8/hr
You should open your own business and scoop up all these unskilled workers and pay them twice the prevailing wage. You'll be a billionaire in no time.
Been wanting to see that clown fest business implode since I was a kid...
The Hamburgler is now such a clean shaven man-bitch. The old Hamburgler was kinda neat in creepy kind-o-way. The old Hamburglar hangs off the sign at the McDonalds museum in San Bernardino.
Old Hamburglar isn't allowed within 100 yards of children.
A down grade huh, man that sucks..Its now
One half of a Half all beef patty, Half sauce, Half Lettuce, Half Cheese, Half Pickle, Half Onion, on a Stale Bun.
Even in this Great Obama economic recovery these garbage fast food companies are losing big.
I mean, what do you say to a clown in this situation?
I know where he's staying. He's not taking calls.
http://www.cliquevodka.com/wp-content/uploads/2014/06/tonopah-nevada-clo...
but, but, it was Mickey D's that was powering the Dow higher just last week on earning - or was it, buybacks - or some shit they told me......
Does being downgraded to BBB mean that they will have to do a burger buy back now..?
I have noticed that ever since they switched to synthetic, GMO oils their customers are getting fatter by the day. Back in the 60's when they used lard all their customers were skinny, me included.
BBB+....almost junk....really???
McD's is still more credit worthy than UST -
With debt virtually "free", why not use it to return money to shareholders? After all, it's not as if Mcd's is a high tech company, or a resource company needing to re-invest its money into R&D, or exploration. Not much science behind slapping together a couple of Big Macs. What I find utterly laughable is that a credit rating agency lowers the rating of a company with a net asset value somewhere north of $20 billion, while keeping the rating of a basically insolvent nation (negative $20 trillion) at triple A.
A joke without a punch line.
Oh, there's a punch line. That insolvent nation has a printing press, and the $20 billion company doesn't.
The innovation comes in replacing as much of the product as possible with air or shop floor droppings while still being able to sell the end result.
Cultiral Marxism claims another victim, Target marketing family-less money-less thugsters, howd that work out for you....clown!
Bearish for IBM
Looks like breakfast all day has solved all of its problems if it can borrow and give the cash away.
"The 3-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging."
Re-leveraging leads to re-deleveraging.
The real reason is that the FED wanted to get rid of the Mac Burger Index.
They want to control all data....
Their debt is still not rated the same as their food quality so it has more room to the downside...
Everyone knows by now that these corporations are taking on massive debt to cheat on EPS ratios, to weasel bigger bonuses. So, why the hell is anybody who has enough money to matter buying this debt? Anybody willing to run a business that way isn't planning to pay the money back.
Bearish for shitty hamburger lovers.
Micky Dees' is a has-been, FINALLy 'Merika comes to its senses! How bad is it? McDonald's couldn't make a buck if Sophia Vergara was serving Hair-Pie in the back room....
Another Paper Caper.
Once apon a time a well run company only took on debt if they had specific capital investments that they needed to supply their product or service to satisfy their customers.
Now companies are run like GM before 2008, you issue bonds so you can continue paying ususpecting Grandmas their dividends - until it blows up in your face and you are bankrupt.
McDonalds just went full retard.
Maverick
Wow, who would have thought it. US CEOs putting Grandma's dividends before their own bonuses. Such self-sacrifice brings a lump to my throat.
Bullish!!
Give an IWatch with every happy meal...
Can I sit at the board now?
I suppose the line 'given we are likely to move into a higher default environment' kind of says it all. Still though... This is some serious stuff!