Trending much wider since last year, credit default swap (CDS) spreads for McDonald's Corporation could actually reverse course in light of some surprising news today, according to Fitch Solutions in its latest CDS Case Study Snapshot.
Five-year CDS on McDonald's have been trending wider since September 2014 and are now 142% wider compared levels seen this time last year. After pricing historically in-line with 'AAA' levels, the cost of credit protection on McDonald's debt is now pricing in 'A+' space. 'Growing market concerns over McDonald's credit prospects are likely attributed to the company's sluggish sales and profitability,' said Director Diana Allmendinger.
That said, McDonald's CDS have tightened modestly over the past week ahead of today's announcement that their Chief Executive Officer is stepping down and being replaced by the Chief Branding Officer. 'Today's news could potentially be perceived by the market as a positive step towards modifying McDonald's strategy,' said Allmendinger.
Fitch Solutions case studies build on data from its CDS Pricing Service and proprietary quantitative models, including CDS Implied Ratings. These credit risk indicators are designed to provide real-time, market-based views of creditworthiness. As such, they can and often do reflect more short term market views on factors such as currencies, seasonal market effects and short-term technical influences. This is in contrast to Fitch Ratings' Issuer Default Ratings (IDRs), which are based on forward-looking fundamental credit analysis over an extended period of time.
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