Macy’s pledges stores as collateral in $1.1bn bond deal

Macy’s is turning to its real estate portfolio to raise cash in the coronavirus crisis, pledging several of its department stores and other properties as collateral in a $1.1bn bond deal.

Stores in downtown Brooklyn, San Francisco’s Union Square and near Millennium Park in Chicago, as well 35 stores in some shopping malls and 10 distribution centres, are being put up as guarantees as the retailer taps capital markets for cash.

In a filing with the US Securities and Exchange Commission, Macy’s estimated the properties in question had a value of $2.2bn — more than its market capitalisation of $1.6bn.

The bond deal is the latest example of companies pledging their assets to help raise cash to outlast the downturn. Aircraft, cruise ships and even a Caribbean island have been put up in secured debt deals by other companies in an attempt to persuade investors to lend them money.

Department stores have been particularly hard hit by the pandemic and the chains JCPenney and Neiman Marcus have both filed for bankruptcy this month. Macy’s, which owns Bloomingdale’s as well as its eponymous stores, forecast last week that it would post a $1bn quarterly operating loss.

The company’s flagship store on New York’s Herald Square is not included in the debt deal. In pledging some of its real estate as collateral, Macy’s will be able to borrow at a lower interest rate than it would in an unsecured bond offering.

The company is set to pay interest of more than 8 per cent on the five-year debt, according to people familiar with the pricing, but such a rate would be a significant saving for Macy’s, whose existing debt largely trades with a yield of more than 10 per cent.

Macy’s said it intended to use the proceeds to help repay a $1.5bn credit facility drawn down in March, when the company turned to its banks for emergency financing.

Macy’s balance sheet has been stronger than its more distressed rivals but the crisis is taking its toll on the company, whose total debt has swelled from $4.7bn to an estimated $5.7bn over the past year.

“The global crisis resulting from the Covid-19 pandemic has had and continues to have a substantial impact on the company’s business,” Macy’s noted in a regulatory filing for the bond deal.

Jeff Gennette, chief executive of Macy’s, said last week that he expected business to recover only “gradually” as its stores begin to reopen. All its approximately 775 stores were closed in March.

Terms of the bond sale were expected to be finalised on Wednesday.

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