By  on March 28, 1994

NEW YORK -- Confusion over what kind of payout trade creditors will get under a plan outlined by R.H. Macy & Co. was reflected in a huge spread Friday between the bid and offering price for the embattled chain's unsecured claims.

The Macy claims were being quoted at 15 bid and 35 asked. The bid price represents the percentage on the dollar that a buyer is prepared to pay and the asked price is the percentage a seller is prepared to accept. With that wide a spread, it is doubtful that any trades were completed Friday.

The day wound up a crucial week for Macy's. It released its plan on Wednesday, saying it plans to distribute $3.6 billion in value to creditors, with possibly more coming later, an action that had analysts wondering how value will be determined and

that also triggered a swift reaction from Fidelity Investments.

Fidelity said it had been working with Macy's on a plan for three months, but it was not the one Macy's proposed to creditors. With a claim of about $600 million purchased from banks and other Macy creditors, Fidelity is seeking a large equity stake in a reorganized Macy's.

Making it clear that if it didn't get what it wanted from Macy's, Fidelity indicated it might move into the camp of Federated Department Stores, which is standing by with a plan to merge the two retailers.

Observers saw the outline of the Macy plan leaving the door wide open for Federated to come in with an offer that might be more attractive to creditors. Cyrus Vance, the court-appointed mediator for Macy's and its creditors, however, has requested that Federated hold off on its proposal until he has a chance to talk to various creditor groups about Macy's offer.

While trading Friday in unsecured claims of Macy's was in disarray, the company's bonds were being quoted with relatively modest spreads. The most senior bonds, maturing in 1998, were being quoted at 47 1/4 to 47 3/4; those due in 2001 were being quoted at 16 1/2 to 18 and the most junior, the zero coupon bonds, were at 4 1/2 to 5 1/4.

With the limited information released by Macy's, there are some traders who think the payout to unsecured creditors would be about 35 cents on the dollar while others expect something closer to 15, according to one trader.The Macy plan merely provided an overall figure of $128 million in "value" to be distributed to unsecured creditors. Based on total unsecured claims of about $400 million, that comes to about 32 cents on the dollar.

The $400 million figure, however, is not firm and there are also some creditors who shipped within 10 days of the bankruptcy who may be entitled to full payment. With an estimate of $28 million for these creditors, the payout drops to 25 cents on the dollar for the rest. Claims against Macy's have been actively traded by Wall Street firms ever since the retailer went into Chapter 11 more than two years ago. The price has ranged from near 40 to as low as 12. Bear Stearns & Co. recently filed papers in bankruptcy court indicating that it purchased the $967,403 claim of Gallery Women Ltd., a manufacturer of women's, children's and men's apparel. The filing did not state how much Bear Stearns paid for the claim, but market sources say Gallery received 35 cents on the dollar for its claim.

Trading of claims allows creditors of companies in bankruptcy to get cash quickly rather than having to wait until a Chapter 11 plan is confirmed. Some creditors need the cash while others are just betting that with the time value of money, they'll come out ahead by bailing out quickly.

Buyers are gambling that when the final payout comes, they will get enough of a premium over what they paid to provide a good return on their investment. In addition to Macy's, there is a market for claims against other large companies in bankruptcy.

According to BDS Securities, unsecured claims of Merry-Go-Round Enterprises were being quoted Friday at 83 to 85 while Leslie Fay Cos. claims were quoted at 80 to 83.

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