The COVID-19 refinancing pieces are finally falling into place for Macy’s Inc.
And investors were heartened to see that the company was coming closer to shoring up its finances and sent shares of the company up 18.4 percent to $6.17 on Tuesday. While that’s a big jump, it still left the company with a market capitalization of just over $1.9 billion — down from $5.3 billion at the start of the year.
The department store said it planned to sell $1.1 billion in bonds due 2025 in a private offering that would allow it to repay outstanding borrowings under its revolving credit facility, according to a filing with the Securities and Exchange Commission.
Setting up the new senior secured notes entails some corporate reshuffling so the debt could be backed by the company’s stores on Fulton Street in Brooklyn, Union Square in San Francisco and State Street in Chicago, as well as 35 mall locations and 10 distribution centers. These assets are valued at about $2.2 billion.
In connection with the offering, the company also plans to enter into an asset-backed loan agreement with Bank of America that will give it a swingline sub-facility and a letter of credit sub-facility and a bridge revolving credit facility of up to $300 million. The loan will also have an accordion feature that expands the facility with an additional $750 million in borrowings.
To make all that work, the subsidiary taking in the asset-backed loan — Macy’s Inventory Funding LLC — will buy all of the inventory held by the operating company and assume any outstanding liabilities and trade payables owed to vendors.
Once the asset-backed loan is closed, the inventory subsidiary will technically be the entity buying inventory and will then consign it to the operating company, Macy’s Retail Holdings Inc. The asset-based facility matures in May 2024.
Along the way, the operating company expects to migrate from a New York corporation to one based in Ohio.
All together, the financing arrangements are expected to set Macy’s up for the immediate future. “We expect to have sufficient liquidity to resolve our accrued payables obligations not otherwise renegotiated, fund operations, and retire upcoming debt maturities in fiscal 2020 and fiscal 2021,” the company said in its filing.
The coronavirus shutdown has hurt retailers across the board.
Macy’s first-quarter sales fell more than 45 percent to $3 billion, with operating losses in the range of $905 million to $1.11 billion.
In the refinancing rush, Macy’s has proven to be somewhere midpack. Some competitors, including Nordstrom Inc. and Gap Inc., were able to tap into bond markets earlier in the crisis, while others, such as Neiman Marcus Group and J.C. Penney Co. Inc., succumbed to bankruptcy.