McDonald's sees McFlurry of demand

* Yield-starved investors go into buying frenzy

* Orders for three-tranche bond surpass 14bn

* More US companies to print euro transactions

LONDON, April 26 (IFR) - McDonald’s garnered over 14bn of demand for its first benchmark foray in the European bond market since May 2015 as investors super-sized their orders for a taste of yield.

The world’s largest fast-food chain will price a 2.5bn three-tranche bond later on Tuesday, ahead of an expected flurry of transactions from US issuers in the European market.

“We went ‘large’,” one portfolio manager said referring to the order he placed at the beginning of the marketing process.

“It looks around 20bp cheap to the existing curve, and I suspect they’ll leave something on the table, other than extra fries.”

The announcement by the European Central Bank in March that it would start buying corporate bonds in June has boosted the European primary bond market as investors try to front-run the central bank.

While questions remain around what the ECB will buy in its corporate sector purchase programme and whether it will stretch to US names, the positive effects have been felt across the board.

“If, as an issuer, you have access to global markets, then euros are looking increasingly attractive versus other funding options,” said Adam Bothamley, global head of debt syndicate at HSBC.

“We have seen a general improvement of spreads since the beginning of the year and the announcement of the CSPP has only added to that. Global corporates see value in the low coupons on offer in Europe.”


Yield-starved investors have been left scrambling for any scrap of value as coupons on new trades turn to 0%, while yields on more than a dozen eurozone companies’ existing bonds have already fallen to below zero.

Unilever on Monday raised four, eight and 12-year corporate debt with 0%, 0.5% and 1.125% coupons, respectively, locking in the ultra-low yields on offer in Europe.

Bankers say the current environment will favour US issuers wanting to raise euros, especially given the improving cross-currency basis swap and low all-in yields.

“The cross-currency basis swap remains in the mid-forties for many maturities which makes euros an attractive market,” said Brendon Moran, global co-head, corporate DCM origination at Societe Generale, lead bank on the McDonald’s deal.

“The dollar market has seen some good improvement but will have to continue to perform well to take away this advantage,” Moran said.

Nasdaq is planning a roadshow later this week.

Reverse Yankees accounted for over 57bn of the 253bn printed in 2015, according to IFR data. So far this year, they have printed 33.3bn out of 104.3bn.

Today’s deal from McDonald’s comes in stark contrast to its last foray in May 2015, when it was forced to pull a 20-year tranche of a 2bn bond sale after investors complained of too much long-dated highly-rated supply.


The US fast food outlet started marketing a triple-tranche euro deal. Initial price thoughts on the euro benchmark four-year deal were mid-swaps plus 70bp area, at mid-swaps plus 90bp area on the seven-year euro benchmark, and at mid-swaps plus 120bp area on the 12-year euro benchmark.

McDonald’s later set guidance for a long four-year tranche at mid-swaps plus 50bp-55bp, a long seven-year at mid-swaps plus 70bp-75bp, and a 12-year at mid-swaps plus 100bp-105bp (all to price in range).

At these levels, new issue premiums on the menu were 10bp-15bp across the three tranches.

The deal will price later today via Citigroup, JP Morgan (B&D), UniCredit and Societe Generale as active bookrunners.

The issuer is rated Baa1/BBB+ (both stable). (Reporting By Laura Benitez, editing by Helene Durand and Ian Edmondson)