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