McDonald's biggest franchisee plans to debut ESG-linked bonds

ARCOS Dorados Holdings, the world's largest operator of McDonald's restaurants, is planning to sell bonds tied to its sustainability goals for the first time.

The senior unsecured notes will be linked to reducing greenhouse gas emissions by 36 per cent from restaurants and offices and 31 per cent in the supply chain by 2030, according to a statement on Monday (Apr 18). The bonds will be issued by the Arcos Dorados subsidiary, the Buenos Aires-based company said.

Moody's Investors Service assigned a Ba2 rating for the 7 to 10-year notes. Proceeds will fund a cash tender offer for about US$351 million of Arcos Dorados 6.625 per cent notes due 2023 and it's 5.875 per cent bonds due 2027, as well as for general corporate purposes.

Arcos Dorados announced the debt buyback separately on Monday. The company didn't say how much it plans to raise in the new debt offering.

Sustainability-linked bonds, or SLBs, are growing in popularity because they can be used by a wider pool of borrowers, including those without big environmental projects, allowing them to tap a growing ethical fund industry and get cheaper borrowing costs. Global sales rose to a record US$110 billion in 2021, according to data compiled by Bloomberg. Barclays expects SLB sales to reach US$235 billion by the end of the year.

SLBs can be used for general corporate purposes, provided issuers pledge to meet certain social or environmental thresholds, such as cutting carbon emissions firm-wide.

Arcos Dorados, which describes itself as the largest independent McDonald's franchisee, is focused on finding ways to reduce greenhouse gas emissions, including plans to replace its fleet of vehicles with hybrid or electric vehicles and creating more strict programmes for its distributors, according to its sustainability-linked financing framework published this month.

The franchisee has a moderately negative ESG Credit Impact Score from Moody's, reflecting the credit rater's assessment that ESG attributes are considered to have a limited impact on the current grade, "with greater potential for future negative impact", Moody's said in a statement Monday. BLOOMBERG