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Rating Action:

Moody's downgrades Macy's senior unsecured rating to Ba1; assigns Ba1 CFR; outlook remains negative

26 Mar 2020

New York, March 26, 2020 -- Moody's Investors Service, ("Moody's") downgraded Macy's, Inc.'s Baa3 senior unsecured rating to Ba1. At the same time, Moody's assigned Macy's, Inc. a Ba1 corporate family rating, Ba1-PD probability of default rating and an SGL-2 speculative grade liquidity rating. The senior unsecured rating at Macy's Retail Holdings, Inc. and May Department Stores Company (The) were also downgraded to Ba1 from Baa3. The Macy's Retail Holdings, Inc. commercial paper rating was downgraded to NP from P-3. The outlook remains negative.

"The disruption and negative effect on consumer demand as a result of COVID-19 will require Macy's to refocus its efforts toward priortizing the preservation of liquidity and delaying its strategic plans to improve its operating performance", said Christina Boni, Vice President.

Downgrades:

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

....Senior Unsecured Commercial Paper, Downgraded to NP from P-3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 (LGD4) from Baa3

..Issuer: Macy's, Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 ( LGD4) from Baa3

..Issuer: May Department Stores Company (The)

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 ( LGD4) from Baa3

Assignments:

..Issuer: Macy's, Inc.

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

.... Speculative Grade Liquidity Rating, Assigned SGL-2

.... Corporate Family Rating, Assigned Ba1

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

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The department store sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Macy's credit profile, including its exposure store closure, China and consumer sentiment have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Macy's remains vulnerable to the outbreak continuing to spread. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Macy's of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Macy's Ba1 CFR reflects its large scale with net sales of roughly $24.6 billion and its market position as the U.S.'s largest department store chain. Macy's integrated approach to its stores and online, enhances its ability to meet the accelerating changes to the demands by consumers and how they shop and may help to mitigate the impact of COVID-19.

Macy's also has good liquidity and clearly stated balance sheet targets including an adjusted leverage ratio (as defined by Macy's) of 2.5 to 2.8 times. Nonetheless, the company has drawn down its $1.5 billion revolver to increase its cash position to contend with the negative effects on demand related to COVID-19. The company's use of free cash flow to repay approximately $2.6 billion in debt over the past three years, remains a credit positive. The company's financial policy is expected to remain conservative and debt reduction prioritized.

Macy's must contend with reinvigorating growth of its top line as it resizes its Macy's footprint by closing 125 stores or 25% of its Macy's branded stores while operating in a weaker consumer environment. Secular trends which include higher price transparency, faster delivery, as well as intense competition from fashion, off-price and on-line apparel are forcing Macy's and its competitors to rapidly change by enhancing its product offerings and customer experience. Macy's remains committed to responsible sourcing and outlines its minimum standards in its Vendor and Supplier Code of Conduct. The company also continues to adapt its brand and offering to changing demographics with a particular focus on the customer under the age of 40 which will be integral to expanding its sales base long term.

The negative outlook reflects the risk that operating performance will remain pressured in the face of COVID-19 and market share erosion continues without clear signs of sales and earnings stabilization. Liquidity could be further compromised to the extent that stores remain closed for an extended period of time and consumer demand remains surpressed.

Ratings could be upgraded should comparable sales and operating income to reflect sustained improvement in performance with the maintenance of a conservative financial policy. Quantitatively and upgrade would require debt/EBITDA sustained below 3.5 times and EBIT/interest expense sustained above 4.0 times.

Ratings could be downgraded should its strategic initiatives result in significant business disruption or sale trends remain weak and operating margins do not improve. Quantitatively, ratings could be downgraded should debt/EBITDA be sustained above 4.0 times or EBIT/interest expense were likely to remain below 3.0 times.

Macy's, Inc., with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2019 net sales of $24.6 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. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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

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.
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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.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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