Department store operator
Macy’s Inc.
launched a funding round offering $1.1 billion in bonds to get the struggling retailer through the lockdowns enforced during the coronavirus pandemic.
New York-based Macy’s Tuesday said it plans to use the proceeds of the bond sale to repay borrowings under a current facility. It will issue senior notes, set to mature in 2025, that will be secured by 35 stores and 10 distribution centers, the retailer said.
The offering is subject to Macy’s entering into a $3 billion revolving credit facility which includes a $300 million bridge credit facility expiring at the end of this year. The revolving credit facility, scheduled to mature in 2024, will be backed by inventory owned by Macy’s, the company said.
With the funds, Macy’s said it expects to have sufficient liquidity to fund its operations and pay off maturing debt in fiscal 2020 and fiscal 2021. Macy’s last week reported that its first-quarter sales fell by as much as 45% and that it expects to book a roughly $1 billion operating loss when it reports financial results for the quarter July 1.
Other retailers, including
Nordstrom Inc.
and
Kohl’s Corp.,
have also raised fresh capital in recent weeks to help them navigate the financial impact of widespread lockdowns aimed at curbing the coronavirus pandemic.
“They [Macy’s] need this as a bridge between now and when things might return to normal,” said Jay Sole, a senior analyst at UBS Group AG who covers retail and department stores. “Given how much money they lost in the first quarter, it makes sense that they continue fortifying the balance sheet.”
Macy’s, which closed its stores in March, has begun reopening them in some parts of the U.S. since the start of the month.
Struggling even before the pandemic, Macy’s expects to recover gradually, Chief Executive Jeffrey Gennette said last week. “For a period of time, we will be a smaller company,” he said, adding that Macy’s would focus on lowering its cost base.
The company has about $530 million of debt coming due January 2021 and $450 million maturing a year later, according to S&P Global. It had about $1.5 billion in cash on hand at the end of the first quarter, Chief Financial Officer Paula Price said last week. Ms. Price is leaving the company at the end of this month.
Tuesday’s funding round could limit the company’s options going forward, analysts at Moody’s Investors Service warned. “Although the proposed transaction will enable Macy’s to maintain good liquidity as it navigates the disruption from Covid-19 and ongoing weakness in consumer demand, it will reduce Macy’s unencumbered asset base,” said Christina Boni, a vice president at Moody’s.
Moody’s and Fitch Ratings downgraded Macy’s on Tuesday. With lower sales and earnings before interest, tax, depreciation and amortization, leverage is set to increase significantly in 2020, Fitch said in a note.
Macy’s declined to comment further on its fundraising.
Last week Macy’s appointed its controller and enterprise risk officer Felicia Williams as interim finance chief to step in for the outgoing Ms. Price. The company said it is searching for a permanent replacement, but declined to comment further.
Write to Nina Trentmann at Nina.Trentmann@wsj.com
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