The fast-food chain priced $1 billion of bonds, giving a boost to the Maple bond market that’s on track to be the busiest since the global financial crisis.
Source: Financial Post
McDonald’s Corp. has become the latest example of how receptive the Canadian debt market has become for global corporate issuers.
The fast-food chain priced $1 billion of bonds on Monday, giving a boost to the Maple bond market that’s on track to be the busiest since the global financial crisis. Before 2008, most debt sales were generated by banks and sovereign issuers, with corporate issuance rare.
It’s different this year, with companies such as Apple Inc., United Parcel Service Inc. and PepsiCo Inc. selling securities in Canadian dollars for the first time, while others including AT&T Inc. and Anheuser-Busch InBev SA returned after several years of hiatus. The Canadian market has also grown to absorb larger bond issues.
“Until recently, non-domestic borrowers wondered if there was adequate liquidity in the Canadian market,” said Jamie Hancock, managing director and head of Canadian debt capital markets at Bank of America Merrill Lynch in Toronto, which was one of the banks managing the offering by McDonald’s. “We’re seeing the maturation of the Maple market becoming a bona fide option for global issuers looking for currency diversification.”
McDonald’s sold bonds maturing in March 2025, initially offering $750 million to $1 billion of the securities at a spread of around 120 basis points above the government of Canada yield curve and eventually pricing them at 117 basis points. The sale took year-to-date Maple issuance to $12.7 billion, the most since 2007, according to data compiled by Bloomberg.
“The issuance capitalized on attractive market conditions in Canada as well as a strong demand from Canadian investors for U.S. investment-grade brand names, such as McDonald’s,” the company said in an emailed statement.
While this technically wasn’t McDonald’s first Canadian dollar bond — it sold $100 million of five-year securities in 1991 — it can be described as its first Maple bond. So-called Maple bonds, or securities issued by foreign companies in the Canadian dollar, didn’t really exist until 2005, according to a Bank of Canada study. That’s when the federal government abolished the foreign property rule, which had limited Canadian investments in foreign assets, helping the Maple market take off.
Back in 2007, which was a record year for Maple issuance with as much as $24.6 billion of bonds sold, almost two thirds was generated by banks and around a third by government entities. This year, non-bank issuers accounted for almost two thirds of total issuance, according to Bloomberg data.
The Canadian dollar has become an attractive alternative for companies looking for funding outside their traditional source of financing in the U.S. dollar market.
“Issuers long believed the U.S. debt market was a bottomless pit of capital, but that is less true now,” said Bill Girard, who manages corporate bond portfolios at Bank of Nova Scotia’s 1832 Asset Management in Toronto and bought McDonald’s bonds. “It’s prudent for large issuers that have the ability to issue in foreign markets to explore them, especially when they have operations in that country.”