Thanks to better business trends and cost disciplines, Macy’s Inc. will be able to retire a big chunk of debt well ahead of schedule.
On Tuesday, Macy’s said it would redeem $1.3 billion in principal amount of its 8.375 percent senior secured notes due 2025, on Aug. 17, 2021. The voluntary early redemption covers the entire amount of the outstanding notes, Macy’s indicated.
“Investing in the profitable growth of Macy’s Inc. remains our priority. We are pleased that as a result of our disciplined approach to capital allocation, especially over the past 16 months, coupled with a return of consumer demand, we are now well positioned to also focus on further enhancing our long-term financial stability and value creation,” Adrian Mitchell, chief financial officer of Macy’s Inc., said in a statement.
“As a result of the redemption of this long-term debt, we are firmly on track to be at or below our target leverage ratio, achieving an investment grade financial profile, by the end of the year. These actions further strengthen our balance sheet, allowing us to invest in our business to deliver strong and sustainable shareholder returns as a digitally led omnichannel retailer.”
Notes will be redeemed by the company at 100 percent of their principal amount, plus accrued and unpaid interest up to, but excluding, the redemption date of Aug. 17, plus the applicable premium due to holders of the notes in connection with an early redemption.
As a result of the early redemption, Macy’s expects to record a pretax charge primarily related to the recognition of the redemption premium and other costs of approximately $185 million in its fiscal third quarter. This pretax charge will be excluded from adjusted diluted earnings per share.
In addition, Macy’s expects to realize annualized interest expense savings of approximately $120 million. Neither the charge nor the interest expense savings was contemplated in the full-year 2021 expectations provided in May.
As of May 1, Macy’s had $4.56 billion of long-term debt on its balance sheet and roughly $1.8 billion in cash and equivalents. The redemption of the notes brings the debt down to around $3.5 billion.