Macy’s Seeks Change in Terms of Credit Agreement
R.H. Macy & Co. is asking bank creditors to lower their earnings requirement for the financially troubled company’s spring season.
The retailer said it is going to fall short of earnings expectations in February, when its spring season begins, according to a 10K report the company filed with the Securities and Exchange Commission.
In January, after filing for Chapter 11 under the U.S. Bankruptcy Code, the New York retailer entered into a $600-million credit agreement with lenders, including Chemical Bank and Bankers Trust. The lenders agreed to provide financing to Macy’s as long as it reached prescribed levels of earnings before interest, taxes, depreciation and amortization, known as EBITDA.
However, Macy’s said in the filing that based on current projections, changes in the bank agreement “are likely to be necessary.”
This isn’t the first time the company has asked its lenders to lower its minimum EBITDA level under the credit agreement. In June, the level was reduced for the quarters ending Oct. 31 and Jan. 30, 1993.
Company officials told Bloomberg Business News that they expect the banks to agree to a lower requirement. The lenders “didn’t want to go past the fall season because they wanted to see how we did,” said Stuart Stoller, a company spokesman.
The request for a lower earnings requirement, coupled with Macy’s recent financial results, raises concerns about whether the company will be able to return to profitability and emerge from bankruptcy protection.
“There’s been a lot of helium in their (earnings) predictions, not just in their Thanksgiving Day floats,” said Alan Millstein, publisher of Fashion Network Report in New York. He said Macy’s dependency on private labels and offshore purchasing will continue to be a drag on its earnings.
Friday, Macy said it had a $1.251-billion loss for the year ended Aug. 1, compared to a $150-million loss a year ago.
The 1992 loss included $988 million in charges for bankruptcy expenses. These expenses included the cost of closing stores, consolidating East Coast and West Coast divisions and paying advisers and lawyers.
Macy’s poor performance reflects the poor consumer selling environment, heavy promotional activity last Christmas and disruption in its Southern California operations as a result of the Los Angeles riots last May. Although Macy’s has seen a nominal improvement in operations, it is still experiencing weak spending in its California stores.
The company has already closed seven Macy’s stores, one Bullock’s department store, five I. Magnin stores and 52 specialty stores. It now operates 114 department stores, 19 I. Magnin stores and 57 specialty and clearance stores.
On Thursday, Macy’s will give its creditors details of a business plan that will provide the operating basis for its reorganization plan. Company officials declined to comment on the plan.
