Macy’s, Inc. has announced the closing on approximately $4.5 billion of new financing. This includes its previously announced $1.3 billion of 8.375% senior secured notes and a new $3.15 billion asset-based credit agreement. The retailer has also provided a Q1 sales preview and status report on reopened stores.
Macy's has noted that reopened stores are performing better than anticipated, that e-commerce improved in May and that curbside pickup performed well, and that the retailer will exit Q2 with a blank inventory slate.
Net sales for Q1, to be announced in July, are anticipated to total $3,017 million, compared to $5,504 million in the same period of 2019.
“The COVID-19 pandemic significantly impacted our first quarter sales and earnings results, but I am proud of the way our team navigated this difficult period and maintained the business while our stores were closed,” said Jeff Gennette, chairman and chief executive officer. “Our strong digital business sales trend continued throughout May, and it is encouraging to see that as we reopen a store, the digital business in that geography continues to be strong. By June 1, we had approximately 450 stores reopened, with the majority opened in their full format. Our reopened stores are performing better than anticipated. Importantly, we are receiving positive feedback on the curbside pickup experience and our efforts to create a safe and welcoming shopping environment."
Gennette added, “We are seeing strong sell-through of seasonal merchandise, and anticipate that we will exit the second quarter in a clean inventory position. The holiday season will be crucial, and the team is working now to get the right merchandise and assortment in place."
The company has amended and substantially reduced the credit commitments of its existing $1.5 billion unsecured credit agreement. The company intends to use the proceeds of the notes offering, along with cash on hand, to repay the outstanding borrowings under the existing $1.5 billion unsecured credit agreement.
With the closing of these financings, the company expects to have sufficient liquidity to address the needs of the business, including funding operations and the purchase of new inventory for upcoming merchandising seasons, resolving its accrued payables obligations and repaying upcoming debt maturities in fiscal 2020 and fiscal 2021.
Closing of senior secured notes offering
The senior secured notes, an offering of $1.3 billion, will mature in June 2025. The notes were issued by Macy’s, Inc. and are secured on a first-priority basis by a first mortgage/deed of trust in certain real property of subsidiaries of Macy’s that were transferred to subsidiaries of Macy’s Propco Holdings, LLC, a newly created direct, wholly-owned subsidiary of Macy’s and a pledge by Propco of the equity interests in its subsidiaries that own such transferred real property.
The notes are, jointly and severally, unconditionally guaranteed on a secured basis by Propco and its subsidiaries and unconditionally guaranteed on an unsecured basis by Macy’s Retail Holdings, LLC., a direct, wholly owned subsidiary of Macy’s, Inc.
Closing of new asset-based credit agreement
The $3.15 billion asset-based credit agreement will mature in May 2024 and includes a short-term facility of $300 million that will mature in December 2020. The asset-based credit agreement also contains an accordion feature that will enable the company to request increases in the size of the facility up to an additional aggregate principal amount of $750 million.
The new asset-based credit agreement is secured by all assets and common equity of the newly formed Macy’s Inventory Funding LLC, which has purchased the vast majority of the company’s inventory, and which is the borrower under the new asset-based credit agreement.
Amendment of existing revolving credit agreement
In conjunction with these financing activities, the company has substantially amended its existing $1.5 billion unsecured revolving credit agreement to reduce the available credit commitment and modify the agreement’s covenants. The amended revolving credit agreement provides the company with unsecured revolving credit of up to $75 million.
“We are pleased with the strong demand from new investors in our notes issuance, which allowed us to tighten pricing and increase the size of the offering,” Jeff Gennette, chairman and CEO of Macy’s, Inc., said. “The high quality of our real estate portfolio positioned us well to execute this offering. Additionally, the continued commitment from our bank group allowed us to more than double the size of our existing revolving credit facility. Together, the notes offering and asset-based credit agreement provide Macy’s, Inc. with approximately $4.5 billion of borrowings and commitments, giving us sufficient flexibility and liquidity to navigate our current environment and fund our business for the foreseeable future. Combined with our ongoing Polaris initiatives, we are confident this liquidity will ensure Macy’s, Inc. remains a strong company to work for, invest in and partner with.”