Moody’s Downgrades McDonald’s Credit Rating

WASHINGTON (Sputnik) — The world’s largest restaurant chain McDonald’s share buyback and dividend plan for shareholders will result in higher debt levels and weaker credit worthiness, rating agency Moody’s said in a statement on Friday, downgrading the restaurant’s debt.

"Moody's views this [McDonald’s] accelerated share repurchase and guidance to the high end of the payout range as McDonald's adopting a more aggressive financial policy towards shareholders that will result in significantly higher debt levels and weaker credit metrics during a period of continuing operating weakness," Moody's Senior Credit Officer Bill Fahy said in the statement.

Moody’s downgraded several of McDonald’s debt instruments by one notch, with senior unsecured debt moving from A2 to A3 and short-term commercial paper from Prime-1 to Prime-2.

Despite the downgrade, McDonald’s debt is still investment grade with a low risk of default, according to the agency.

“The A3 senior unsecured ratings recognize the global strength of the McDonald's brand, its excellent geographic diversity, a steady pipeline of new product offerings, leading market position, strong cash flow and excellent liquidity, and a healthy franchise network,” Moody’s said noting the company’s strengths.

Moody’s gave McDonald’s a stable outlook based on the brand’s strength and thousands of franchises around the globe despite declining sales over the past several years.

Stiff competition from Burger King, Shake Shack, and Chipotle in the United States alongside more health conscious consumers have resulted in declining quarterly sales at McDonald’s 35,000 outlets since late 2013, according to financial analysts.

McDonald’s share buyback and dividend program is expected to cost the company between $18 to $20 billion.