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Rating Action:

Moody's assigns Macy's newly exchanged notes a Ba2

29 Jul 2020

New York, July 29, 2020 -- Moody's Investors Service, ("Moody's") affirmed Macy's, Inc.'s ("Macy's") corporate family rating at Ba3 and its probability of default rating at Ba3-PD. The senior secured notes at Macy's, Inc. were affirmed at Ba1. The senior unsecured notes at Macy's, Inc., May Department Stores Company and Macy's Retail Holdings, Inc. (MRH) were affirmed at B1. The Macy's Retail Holdings, Inc. commercial paper rating was affirmed at NP. The speculative grade liquidity rating remains SGL-2 and the outlook remains negative.

Moody's also assigned a Ba2 to its new exchanged Macy's Retail Holdings, Inc. senior secured notes. The newly exchanged notes will have a second lien on the collateral which secures the Macy's Inc. senior secured notes, which includes its San Francisco, Chicago, and Brooklyn locations, 35 mall assets, and 10 distribution centers. The newly exchanged notes are rated at Ba2, one notch above its Ba3 CFR, reflecting the benefit of the collateral provided by the second lien. The exchange notes are also a notch below the senior secured notes reflecting their junior position to the senior secured notes which have a first lien.

"The exchange enables Macy's to align certain covenants, including its permitted liens, more closely with its recently issued senior secured notes" said Christina Boni, Vice President. "Nonetheless, it adds more secured debt which puts the remaining senior unsecured notes in a more junior position", Boni added.

Assignments:

..Issuer: Macy's Retail Holdings, Inc.

....Senior Secured 2nd Lien Regular Bond/Debenture, Assigned Ba2 (LGD3)

Affirmations:

..Issuer: Macy's Retail Holdings, Inc.

....Senior Unsecured Commercial Paper, Affirmed NP

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5)

..Issuer: Macy's, Inc.

.... Probability of Default Rating, Affirmed Ba3-PD

.... Corporate Family Rating, Affirmed Ba3

....Senior Secured Regular Bond/Debenture, Affirmed Ba1 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5)

..Issuer: May Department Stores Company (The)

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5)

Outlook Actions:

..Issuer: Macy's Retail Holdings, Inc.

....Outlook, Remains Negative

..Issuer: Macy's, Inc.

....Outlook, Remains Negative

..Issuer: May Department Stores Company (The)

....Outlook, Remains Negative

RATINGS RATIONALE

Macy's Ba3 corporate family rating is supported by governance considerations which include its suspension of common dividends and share repurchases given the disruption of COVID-19 and its historically conservative financial strategy which resulted in $2.6 billion in debt reduction over the past three years. The rating also reflects its large scale with LTM net sales of roughly $22.1 billion and its market position as the US's largest department store chain. Although Macy's integrated approach to its stores and online, enhances its ability to meet the even more rapid change to the competitive environment post COVID-19, the company was already contending with reinvigorating its performance as it announced the resizing of its footprint by closing 125 stores or 25% of its Macy's branded stores. Secular trends include increased acceleration of sales moving online, higher price transparency, faster delivery, as well as intense competition from alternative channels

Although Macy's also has good liquidity, the company will need to utilize its new $2.851 billion revolver due 2024 (which also has an additional $300 million available through December 2020) to fund cash fall cash shortfalls in 2020. The company's financial strategy is expected to remain conservative and debt reduction prioritized.

The negative outlook reflects that Macy's operating performance will remain pressured in the face of COVID-19 and weaker consumer demand. The outlook also reflects the challenge resizing its business to meet a lower level of demand as the secular trends affecting the department store sector prior to COVID-19 accelerate.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade in rating is unlikely given the negative outlook. Ratings could be upgraded should comparable sales and operating income to reflect sustained improvement in performance with the maintenance of a conservative financial strategy. Quantitatively, ratings could be upgraded should the operating performance be positioned to return to 80% of 2019 EBITDA.

Ratings could be downgraded should the company experience significant market share erosion relative to its peers, liquidity deteriorates for any reason, or its unencumbered assets are utilized for any purpose other than deleveraging, or cash is utilized to fund shareholder returns. Quantitatively, ratings could be downgraded should the operating performance not be positioned to return to 70% of 2019 EBITDA with no material increase in debt.

Macy's, Inc., with its corporate office in New York, is one of the nation's premier retailers, LTM net sales of roughly $22.1 billion. The company operates 775 stores in 43 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's, Bloomingdale's, Bloomingdale's Outlet, Macy's Backstage and Bluemercury, as well as the macys.com, bloomingdales.com and bluemercury.com websites. Bloomingdale's in Dubai and Kuwait are operated by Al Tayer Group LLC under license agreements.

The principal methodology used in these ratings was Retail Industry published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Christina Boni
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

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​
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