NEW YORK — The proposal for the reorganization of R.H. Macy & Co. submitted Thursday by the bondholders’ committee will have a hard time getting off the ground, people close to the reorganization said Friday.
The proposal is predicated on bondholders raising $1.475 billion in cash and on equity holders agreeing to mark down their claims by 15 percent.
Nevertheless, Macy’s bonds turned up in trading on Friday. The senior class of 14.5 percent subordinated debentures due in 1998 were trading at 52-53, up about 2 from Thursday; the 14.5 subordinated debentures due 2001 were trading at 17-18, up about a half; and, the zero coupon bonds were at 4-6, up slightly.
Macy’s, which market sources say is trying to divide the bondholders’ committee by offering senior bondholders a better payout than junior bondholders, is expected to submit a second revised proposal, improving its $3.67 billion payout, as early as today.
Federated Department Stores, which is seeking a merger with Macy’s, submitted a $3.51 billion proposed payout to creditors that offered bondholders very little. It, too, is expected to submit a revise as early as today.
The bondholders have been upset with previous valuations, which they say are too low and would result in too low a payout.
The main problems with the bondholders’ proposal, say people close to the creditors, center on how bondholders will raise the nearly $1.5 billion cash and how they will convince secured creditors to accept 85 percent of what they are owed.
But while the plan was greeted with skepticism, many said such a bold move was a good way for the group to open negotiations for a payout increase under any Macy’s plan of reorganization and an honest attempt to avoid litigation on the matter.
The bondholders propose buying 91.3 percent of the $1.9 billion in equity that is part of Macy’s $3.67 billion proposal. The rest of Macy’s plan consists of $1.6 billion of debt, $172 million in cash.
Under the bondholders’ proposal, they alone would be offered rights to purchase the chunk of equity for $1.475 billion — a 15 percent discount for paying cash.
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If the rights offering is fully subscribed, the $1.475 billion, together with the $172 million in Macy’s cash would be distributed to creditors. With the remaining 8.7 percent of the equity, which the Macy’s plan allocated to bondholders, the group would own 100 percent of the company.
Secured creditors will get a payout of cash and equity if the rights offering is not fully subscribed.
“That might be the largest rights offering ever and I really can’t see how they are going to pull it off,” said one source close to the negotiations. “Plus, if the rights offering isn’t fully subscribed, it is going to hurt the price of the equity offering. Secured creditors would already have given up 15 percent of their claims. A partially subscribed rights offering will hurt them further and makes it more likely that they will not go for the bondholders’ proposal.”
Many people close to the negotiations said they expected the true battle for Macy’s to center around Macy’s and Federated.
Another source close to the mediation process said that with the likelihood of the rights offering not being fully subscribed, he would concentrate his energies on improving his groups’ payout from Macy’s and Federated.
The bondholders’ proposal is the third proposal after Macy’s and Federated’s.