Moody's Downgrades McDonald's On Concerns About Debt-funded Shareholder Returns

Moody's Investors Service downgraded McDonald's Corp.'s senior unsecured rating to Baa1 from A3 Wednesday, after the company said it will ramp up returns to shareholders and issue debt to do so. McDonald's told investors at a meeting on Tuesday that it plans to return $30 billion to shareholders in the three-year period to end 2016, and will fund $10 billion of that total with fresh debt. "Overall, Moody's views this debt financed share repurchase initiative as McDonald's maintaining an aggressive financial policy towards shareholders that will result in significantly higher debt levels, weaker credit metrics and further limit its financial flexibility." Moody's Senior Credit Officer Bill Fahy said in a statement. The Baa1 rating is just three notches above speculative, or junk, status. "In addition, McDonald's ability to strengthen credit metrics from these elevated levels could be challenging in the event the company's turnaround plans and business restructuring were delayed or fell short of expectations or shareholder returns increased," said Fahy. Standard & Poor's downgraded McDonald's rating to A-minus from BBB-plus on Tuesday. McDonald's Shares were up 1% in midday trade.