NEW YORK -- For Federated Department Stores, the purchase of 50 percent of Prudential's claim against R.H. Macy & Co. has little downside risk, according to analysts.
The Prudential loan pays interest of 12 percent a year and is secured by mortgages on 70 Macy stores. This puts it at the top of the heap of claims against the chain and the loan should be repaid in full before bank creditors, trade creditors or bond holders get anything.
Federated bought the 50 percent interest in the Prudential claim for $449.3 million and has an option to buy the rest. In addition to a cash payment of $109 million, Federated gave Prudential a three-year note for $340 million.
Interest on the note in the first year will be the London Interbank Offering Rate (LIBOR) plus 1.75 percent and, in the next two years, it will be LIBOR plus 2 percent. According to analysts, this translates to an overall interest rate of about 5 percent a year, giving Federated a 7-point spread over the interest costs on the note.
Thus, if Federated is unable to work a deal to acquire Macy's or any part of it, it should still make money on the claim.
One analyst said Federated's return on equity would be in double digits if all the interest on the Prudential loan is paid.
As to the price Federated paid for the Prudential loan, it either paid a premium or it bought the claim at a discount, depending on whether all the accrued interest is paid. In Macy's Chapter 11 proceeding, interest on the loan is being accrued but is not being paid. If the court finds that the value of the collateral exceeds the value of the loan, the interest would be paid, according to analysts.
Federated paid an 8 percent premium on the principal of the loan. However, with interest, the Prudential loan is worth 24 percent more than the principal, or a total of about $1 billion.
A Prudential spokesman said the benefit for the insurance giant is that it gets to convert a large portion of a nonperforming loan into a performing loan. Under accounting rules, Prudential must set up a reserve for the entire loan. Now it can classify part of it as "performing." In addition, Prudential gets $109 million in cash, he said.He confirmed that Federated paid 8 percent above the principal and that the interest did bring the value of the Prudential claim up by 24 percent. Explaining why Prudential agreed to sell the claim, he said the sale was a good deal for the insurance company because it was able to exchange a firm offer for the "uncertainties" of the bankruptcy proceeding results.
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion (📷: Dominique Maître)
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)
Not only does #TheProfit return to CNBC tonight, but @marcuslemonis has launched @shopmarcus, a new shopping and lifestyle retail experience in Aspen and Chicago, with more locations to come. The retail stores offer in-store stylists and a variety of contemporary womenswear selections.
“It’s life, I’m going to face it,” @mingxi11 sighed. “I fell, but you know, I think the most important thing is that I get back up. I had the love, the help from my sister — the girl next to me Gizele [Oliveira] — she’s so nice. When I went backstage everybody was trying to comfort me like ‘Oh Ming, it’s OK.’ I’m really, really touched. I think it’s them who gave me the courage to go back on stage for the finale,” Xi told WWD of her fall at the @victoriassecret fashion show. (📷: David Fisher) #wwdfashion #vsfashionshow #victoriassecret
@louisvuitton tapped @therealpeterlindbergh for its latest city-centric photo book, which is part of a series called Fashion Eye. The primarily black and white book captures the spirit of Berlin in 57 images shot between 1989 and 2019. “Berlin is an inspiration for me, more than a city. I mean @millajovovich is simply Berlin!” said Lindbergh. #wwdfashion
“You know, I think audiences expect a certain performance so I have to deliver to them what they’re expecting to a certain degree. But I’m also a different actor and a different person, I have my own spin on the character,” says @noahegalvin of his takeover of the leading role in “Dear Evan Hansen” following the departure of @bensplatt, who originated the role. Read WWD’s interview with the 23-year-old actor on WWD.com #wwdeye (📷: @jilliansollazzo)
For pre-fall 2018, @etro created richly-colored wonderland, using tapestries, textiles and wallpapers from the Eastern world at large. The line featured floral and graphic prints and jacquard motifs, like this two-piece look featured here. #wwdfashion (📷: Giovanna Pavesi)
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)