Macy’s Raises $4.5 Billion, Funding Its Operations Through Fiscal 2021

Last month, Macy’s said it would raise $1.3 billion through a debt offering at a 8.375% interest rate for five-year senior secured notes, exceeding the company’s initial target to sell $1.1 billion of debt.

Monday’s financing announcement means Macy’s is no longer at risk of bankruptcy, said David Swartz, an equity analyst at investment research firm Morningstar Research Services LLC.

“Macy’s was in danger of running out of cash in the fall without financing. This new financing should allow it to get through the holiday period and into 2021 even if sales remain very low for months,” Mr. Swartz said.

Macy’s reported in May that its first-quarter sales fell by as much as 45% and that it expected to book a roughly $1 billion operating loss when it reports financial results for the quarter on July 1.

The retailer, which temporarily shut all its stores in response to local lockdown orders aimed at curbing the spread of the novel coronavirus, was struggling even before the beginning of the pandemic amid changing shopping habits.

Macy’s began reopening stores in May but expects the pandemic to affect its results for several quarters to come, Chief Executive Jeff Gennette has said.

The retailer benefited from its real-estate assets that it used as collateral on its debt offering. “The quality and depth of Macy’s real-estate portfolio put the company in a position of strength,” said Chuck Grom, a senior analyst at Gordon Haskett Research Advisors LLC.

Macy’s senior secured notes will be backed by three properties in New York City, San Francisco and Chicago, 35 stores in select malls and 10 distribution centers, the retailer said at an investor presentation in May. Macy’s also said it would set up a new wholly owned subsidiary for the collateral called Macy’s Propco Holdings LLC.

The new asset-based credit agreement is secured by Macy’s Inventory Funding LLC, a newly formed entity that has purchased most of the company’s inventory, Macy’s said.

Macy’s also amended the terms of its existing $1.5 billion unsecured revolving-credit facility to modify its covenants and reduce the amount of funds available under that agreement.

The amended facility provides up to $75 million of unsecured revolving credit, Macy’s said.

The department store chain has about $530 million of debt due January 2021 and $450 million maturing a year later, according to S&P Global. Macy’s had about $1.5 billion in cash on hand at the end of the first quarter, former Chief Financial Officer Paula Price said in May.

Write to Nina Trentmann at [email protected]