NEW YORK — By objecting to proposals from R.H. Macy & Co. and Federated Department Stores on Macy’s Chapter 11 plan, the bondholders’ committee stands a good chance of improving its payout, according to bond and bankruptcy experts.
According to Wilbur Ross, senior managing director at Rothschild Inc., bondholders in Chapter 11 can try to increase their payout by forcing a valuation hearing in bankruptcy court.
“A valuation hearing comes down to a battle of expert witnesses where the dissident bondholders put their witnesses on the stand to testify on what valuation Macy’s should have. Then Macy’s puts its experts on the stand, and then the judge picks which group he believes.
“Secondly,” Ross said, “the bondholders’ group could look to put together an acquisition bid or some sort of capital structure financial package that supports a higher bid. That would confirm to the outside world that the higher valuations they have been asking for are valid.”
These tactics are costly and could delay the Chapter 11 case for months, Ross said.
The debtor and senior creditors, anxious for the case to end and to keep expenses low, are usually open to a higher payout to bondholders to avoid the delay, Ross said.
But bondholders might not even have to move a muscle.
“By objecting to both proposals, bondholders can sit back and wait for Macy’s and Federated to come back with better proposals, maybe start bidding against each other, and offer a larger payout,” one analyst said. “If Federated weren’t involved in the case, I’d say good luck to the bondholders getting another nickel.
“But with Federated being an interested buyer and some sort of bidding war likely at some point, I think it is entirely possible that the bondholders’ strategy could succeed. The winning company is going to have to offer something.”
The analyst said Robert Miller, counsel to the bondholders’ committee, has tried similar strategies in the past, with mixed results. He said with Federated involved, his chances of improving bondholders’ payout were good.
As reported, Miller said Tuesday that he was opposed to Macy’s $3.67 billion proposal and Federated’s $3.51 billion proposal because they were “inadequate and unfair” to his clients.
The Macy’s proposal split the bondholders into senior and junior classes. The owners of the approximately $380 million in senior bonds would receive $165 million, or 43 cents on the dollar, upon confirmation plus five-year warrants for 6.5 percent of Macy’s equity.
The two junior classes would receive nothing upon confirmation but would be offered rights for up to 25 percent of Macy’s equity.
Federated’s proposal did not disclose the payout to bondholders, but sources say it will offer $45 million to vendors. Its offer to bondholders, said the same sources, is $75 million. Federated could not be reached for comment.