Macy to Sell $150 Million in Stock to Reduce Its Debt
Retailer R. H. Macy & Co. took another step toward reducing its heavy debt burden Thursday, announcing that it would sell up to $150 million in additional equity to its current outside shareholders.
Macy’s said four big shareholders--GE Capital Corp., Loews Corp., Mutual Series Fund and Taubman Investment Co.--have committed to buy a minimum of $100 million in stock. Analysts praised the move as a constructive step and a clear vote of confidence by the struggling company’s biggest shareholders.
The company--still paying the bills from a 1986 management-led buyout and the 1988 acquisition of the California-based Bullocks and I. Magnin chains--said in a statement that it would use proceeds of the sale to purchase some its outstanding junk bonds.
Macy’s told investors last week that it planned more sales of stock to reduce liabilities, saying it was “exploring the possibility of selling a more substantial equity interest to a buyer who shares our view of Macy’s value and future.” The sale announced Thursday, however, did not appear to be the transaction that Macy’s has said it is contemplating.
The retailer has sought to cut its debt load since a disappointing Christmas, 1989, sent its losses soaring and raised questions about its ability to cover its interest expenses.
Last month, Macy’s announced that it was selling its credit operations to GE Capital for about $100 million. It said the move would remove $1.5 billion from its $4.8-billion debt. In August, the company sold a 1% equity stake and used the proceeds to retire $50 million in junk bonds.
Thursday’s announcement came after the closing of the bond market, where Macy’s junk bonds have tumbled lately on rumors that the company would seek to renegotiate its debt. Investors were also surprised by a report this week that BancBoston Financial, which provides credit to a small number of Macy’s suppliers, was withdrawing credit for merchandise shipped after Nov. 18.
Credit industry sources, however, said BancBoston’s move was an isolated one and that other firms are continuing to provide financing for shipments to Macy’s stores.
Macy’s told investors last week that it was prepared for another difficult Christmas. With a lagging economy and unresolved Middle East crisis, consumers have cut their spending sharply and the entire retail industry is expecting a bleak holiday shopping season.
The retailer said it has reduced its inventory, cut expenses and planned conservatively going into the Christmas period.
Macy’s disclosed last month that its losses quadrupled to $215.3 million in the fiscal year ended July 28 on sales of $7.27 billion.
Besides its flagship Macy’s stores and the I. Magnin and Bullock’s chains, the company owns specialty stores including Charter Club, Fantasies by Morgan Taylor and Aeropostale.
