Macy Sells Finance Units to Lighten Debt

Troubled retailer R.H. Macy & Co., acting to strengthen its debt-heavy balance sheet, said Thursday that it had agreed to sell its two credit finance units.

Analysts said that although the sale to GE Capital Corp. would lift $1.5 billion in debt from Macy’s balance sheet, it would do nothing to help the retailer with its high-yield debt obligations. Some even said the sale could be a sign that the retailer faces a serious cash crunch shortly.

Macy said it would sell the finance units, Macy Credit Corp. and Macy Receivables Funding Corp., to GE Capital, a subsidiary of General Electric Co.

The net asset value of the unis is $100 million, and the deal is expected to be completed by late January, Macy said.

The deal involves the sale of about $1.6 billion of accounts receivable--money owed Macy by its credit card customers--against which it had borrowed about $1.5 billion.

“This is part of Macy’s program to reduce debt,” said James Fingeroth, a spokesman for Macy. He said Macy had previously said it would sell non-operating assets.

Macy has about $5.7 billion in outstanding short- and long-term debt, including high-yield debt with a face value of $1.85 billion. Macy’s Fingeroth said the sale of the accounts receivable would reduce long-term debt by about $800,000 to about $4 billion, and short-term debt, now at about $1 billion, by about $700 million.

Nicholas Gallopo, a partner specializing in the retail industry for Arthur Andersen & Co., said the Macy deal was a “standard technique used by highly leveraged companies to raise capital.”

He also said Macy stands to lose on the deal, forfeiting potential interest income from credit card accounts on which the full balance is not paid within 30 days. “This is a very lucrative side of the retail business,” Gallopo said.