Standard & Poor’s Corp. said Thursday that it is considering lowering its investment rating on R. H. Macy & Co.'s $2.5 billion in junk bonds largely because of the big retailer’s weak performance this year.
The announcement by Standard & Poor’s, a leading New York investment-rating service, followed this week’s disclosure that Macy’s lost an unexpectedly high $66.1 million in its first quarter ended Oct. 31 on sales that fell 9.5% to $1.55 billion. Analysts have expressed concern about the company’s declining sales as it heads into the pivotal Christmas shopping season.
With Macy’s junk bonds already trading at what analysts consider bankruptcy levels, the securities’ prices have held firm this week despite the bad news. Macy’s junk bonds maturing in 1998 are trading at around 44 cents on the dollar, and its 14 1/2% bonds maturing in 2001 are around 30 cents.
Joanne Legomsky, an analyst with Standard & Poor’s, suggested that the only immediate impact of her firm’s announcement is that suppliers possibly will become more jittery about doing business with Macy’s. But major credit advisory services, citing Macy’s prompt payments, have continued to give suppliers the go-ahead to send shipments to the chain’s stores.
Macy’s finances, Legomsky said, should be helped by its recently disclosed plans to seek $150 million in fresh capital from investors and its agreement to sell its credit subsidiaries to General Electric Capital Corp. At the same time, she said, Macy’s bonds were placed on S&P;'s “credit watch” with “negative implications” because of the company’s troubled long-term outlook amid a general downturn in the retailing industry.
The company, which lost $215.3 million in the fiscal year ended July 28, has been weighed down by $5.6 billion in debt stemming largely from its leveraged buyout in 1986 and its acquisition of California’s Bullock’s and I. Magnin chains in 1988. Over the coming years, Legomsky said, Macy’s will not be able to cover its interest expenses unless its business rebounds or the company’s finances are restructured.
Macy’s junk bond, or subordinated debt, already carries one of S&P;'s lowest ratings, Triple-C-plus.