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Rating Action:

Moody's downgrades Macy's Retail Holdings previously secured notes to Ba2 following collateral release; Affirms Macy's Ba1 CFR

05 Apr 2022

New York, April 05, 2022 -- Moody's Investors Service ("Moody's") affirmed Macy's, Inc.'s ("Macy's") corporate family rating ("CFR") at Ba1 and its probability of default rating at Ba1-PD. The senior unsecured notes (formally Senior Secured notes) at Macy's Retail Holdings, LLC (MRH) were downgraded to Ba2 from Baa3. The senior unsecured notes at Macy's, Inc. and Macy's Retail Holdings, LLC were affirmed at Ba2. The Macy's Retail Holdings, LLC commercial paper rating was affirmed at NP. The speculative grade liquidity rating remains unchanged at SGL-1. The outlook is stable.

The downgrade reflects governance considerations particularly MRH's completion of an offer to redeem its senior secured notes which upon completion resulted in the release of the collateral securing the remaining notes. Following the release of the collateral, these notes are now unsecured and rank equal in priority with its outstanding senior unsecured notes. The previous senior secured notes were renamed Gtd Senior Unsecured Notes. The affirmations, including its Ba1 CFR and Ba2 senior unsecured note ratings reflects Macy's continued recovery in operating performance with 2021 performance exceeding Moody's expectations. Moody's estimates that Macy's can maintain debt/EBITDA at or below 2.5x as consumer spending normalizes in fiscal 2022. The SGL-1 reflects Macy's positive free cash flow generation, sizable excess cash balances and the expectation that its $3.0 billion revolver will remain undrawn other than for temporary seasonal borrowings.

Downgrades:

..Issuer: Macy's Retail Holdings, LLC

....Gtd Senior Unsecured Notes, Downgraded to Ba2 (LGD4) from Baa3 (LGD2)

Affirmations:

..Issuer: Macy's Retail Holdings, LLC

....Senior Unsecured Commercial Paper, Affirmed NP

....Gtd Senior Unsecured Notes, Affirmed Ba2 (LGD4)

..Issuer: Macy's, Inc.

.... Corporate Family Rating, Affirmed Ba1

.... Probability of Default Rating, Affirmed Ba1-PD

.....Senior Unsecured Notes, Affirmed Ba2 (LGD4)

Outlook Actions:

..Issuer: Macy's Retail Holdings, LLC

....Outlook, Remains Stable

..Issuer: Macy's, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

Macy's, Inc.' Ba1 corporate family rating reflects governance considerations including its conservative capital allocation strategy which includes its continued prioritization of debt reduction and the maintenance of low leverage. The rating also reflects Macy's large scale with LTM net sales of roughly $25 billion as of January 29, 2022 and its market position as the US's largest department store chain. Its integrated approach to stores and online enhances its ability to meet the demands of the rapidly changing competitive environment with its online business currently in excess of $8.5 billion. The company has improved its operating performance through customer reengagement, cost reduction and solid inventory management. Macy's has participated in the increased movement of sales online, and must continue to meet faster delivery demands, as well as intense competition from alternative channels. The rating remains constrained by the risk of business normalization as consumer spending in 2021 benefitted from stimulus, reopening, and pent up demand. Macy's has very good liquidity, evidenced by its $1.7 billion in cash at the end of fiscal 2021, an expectation for free cash flow generation even after higher capital spending and an increased dividend and a significant amount available under its $3.0 billion revolver.

The Ba2 rating on Macy's senior unsecured debt is one notch below the CFR reflecting its junior position in the capital structure to the company's asset based revolving credit facility.

The stable outlook reflects the company's success in resizing its cost structure and its conservative financial strategy as well as the expectation that Macy's can maintain its current market position as well as credit metrics appropriate for the Ba1 rating as consumer demand normalizes.

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

The ratings could be upgraded if the company demonstrates a consistent track record of sales and operating income performance which includes a stabilization or increase in its market share relative to alternative competitive channels as well as its department store peers. In addition, the company must also continue to reduce its reliance on traditional mall based assets through the successful execution of new growth strategies such as Macy's and Bloomingdale's Digital Marketplaces and its off-mall Macy's concept in order for an upgrade to be considered. An upgrade would also require a capital structure that is commensurate with an investment grade rating. Quantitatively, a rating upgrade would also require maintaining very good liquidity and a conservative and clearly articulated financial strategy. Quantitatively ratings could be upgraded if debt/EBITDA is sustained below 2.0 times and EBIT/interest expense is sustained above 5.5 times.

Ratings could be downgraded should liquidity deteriorate, comparable sales performance reflects weaker market positioning, operating performance including margins deteriorate or a more aggressive financial strategy is pursued including the utilization of unencumbered assets for any purpose other than deleveraging. Quantitatively, ratings could be downgraded debt/EBITDA be sustained above 3.25x and interest coverage is sustained below 3.75x.

With its corporate office in New York, NY, Macy's, Inc. is one of the nation's premier retailers, with LTM net sales of approximately $25 billion. The company operates 725 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, Market by Macy's, Bloomie's, 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 published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1296095. 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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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
Senior Vice President
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.
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