Fitch Rates McDonald's Proposed $750MM Note Issuance 'A'

Fitch Ratings has assigned an 'A' rating to McDonald's (NYSE: MCD) proposed $750 million issuance of 10-year and 30-year senior unsecured notes. At Sept. 30, 2011, McDonald's had $12.5 billion of total debt.

The notes will be issued under McDonald's Medium Term Notes Program registered with the SEC on Sept. 28, 2009 and rank pari passu with McDonald's existing debt. There are no financial covenants. Proceeds will be used for general corporate purposes, which may include refinancing of debt. Aggregate maturities of long-term debt are approximately $1 billion in both 2012 and 2013.

McDonald's ratings reflect the company's substantial cash flow generation, considerable financial flexibility, and leading global market position. The ratings also consider the company's significant real estate ownership and well-established franchisee network, which provide a sizeable royalty stream along with contractual rental income on properties owned or leased by McDonald's. At Dec. 31, 2011, franchisees and affiliates operated approximately 81% of the company's 33,510 system-wide restaurants. The remaining 19% were company-operated.

Over the past five years, McDonald's annual free cash flow (defined as cash flow from operations less capital expenditures and dividends) has averaged $1.6 billion. Year-end cash balances have exceeded nearly $1.8 billion during the same period. McDonald's liquidity is further supplemented by an undrawn $1.5 billion committed revolving credit line expiring Nov. 8, 2016.

McDonald's credit statistics are in line with Fitch's expectations and are projected to remain relatively stable in the near term, even after incorporating the current debt issuance. For the latest 12 month (LTM) period ended Sept. 30, 2011, total debt-to-operating EBITDA and operating EBITDA-to-gross interest expense were an estimated 1.3 times (x) and 19.2x, respectively. Rent-adjusted leverage, defined as total debt plus eight times gross rent expense divided by earnings before interest, taxes, depreciation, amortization and gross rent expense (EBITDAR), was 2.3x. Rent adjusted interest coverage, defined as EBITDAR divided by gross interest expense plus gross rent expense, was 5.4x, and funds from operations fixed-charge coverage was 4.3x. McDonald's continues to return significant cash to shareholders through share repurchases and dividends but is expected to maintain credit measures appropriate for its 'A/F1' ratings.

McDonald's three global operating priorities are to optimize its menu, modernize the customer experience and broaden accessibility to its brand. As such, the company is expanding its menu offerings, re-imaging restaurants and focusing on everyday affordability. During 2012, McDonald's plans to launch additional beverage, chicken, and breakfast options in the U.S. and has increased its capital expenditure budget to $2.9 billion, from about $2.5 billion in 2011, to accelerate remodeling efforts across its system.

During 2011, revenue increased 12% to $27 billion, operating income rose a healthy 14% to $8.5 billion, and combined operating margin expanded 60 basis points (bps) to 31.6%. Excluding the impact of currency, revenue rose and operating income grew 8% and 10%, respectively. Global same-store sales (SSS) were positive 5.6%, due mainly to a 3.7% increase in guest counts and modest pricing. Every region of the world contributed to sales growth as SSS were 5.9%, 4.8% and 4.7% higher in Europe, the United States, and Asia/Pacific, Middle East and Africa (APMEA), respectively.

McDonald's global company-operated restaurant margin declined 70 bps during 2011 due chiefly to rising food costs but continues to lead the industry at 18.9%. During 2012, McDonald's expects its U.S. and European operations to experience 4.5% - 5.5% and 2.5% - 3.5% of food cost inflation, respectively. Fitch believes robust SSS growth will continue to partially offset these cost pressures.

McDonald's estimates that global SSS increased 5.5% - 6.5% during January 2012. Fitch attributes the system's success to its ability to offer value, convenience, and consistently high quality food that appeals to a broad range of consumers worldwide. McDonald's should continue to generate good sales performance despite high global unemployment, an increasingly competitive environment in the U.S., and austerity measures throughout much of Europe.

Fitch currently rates McDonald's debt as follows:

--Long-term Issuer Default Rating (IDR) 'A';

--Bank credit facility 'A';

--Senior unsecured debt 'A';

--Short-term IDR 'F1';

--Commercial paper 'F1'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'2012 Outlook: U.S. Restaurants; Credit Risk Is Chiefly Contained as Sales Will Grow but Food Costs Remain Elevated' (Dec. 7, 2011).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

2012 Outlook: U.S. Restaurants

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656831

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