Macy's Looking To Raise Up To $5B In Debt To Avoid Bankruptcy

Macy’s Inc. M is raising up to $5 billion in debt as it tries to avoid bankruptcy while strengthening its capital structure.

What Happened

Macy’s will use its inventory as collateral to raise $3 billion and its real estate to raise another $1-2 billion. There are no plans to pledge its location at Herald Square, New York, reported CNBC citing sources.

Macy’s raising billions in financing indicates what kind of pressures the retailer faces as the pandemic has forced it to shutter its brick and mortar locations.

In a statement to CNBC, a company spokesperson revealed, “The coronavirus pandemic continues to take a toll on Macy’s business. While the digital business remains open, we have lost the majority of our sales due to our store closures.”

Why It Matters

Macy’s owns Bluemercury and Bloomingdales and has 775 locations. It has nearly $25 billion in sales and net debt of $3.5 billion, as of January. The retail giant’s nearest debt maturity is valued at $530 million and is due January 2021. 

According to CNBC, Macy’s experience with bankruptcy in 1990 has made it resistant to pressure from activist investors, urging the retailer to monetize its real estate assets. Furthermore, The coronavirus pandemic has led to struggles with fixed costs and scant sales for the retail segment. All of Macy’s stores have been shuttered since March 18.

Other retailers are in a similar position, with Ares Management Corp ARES owned Neiman Marcus seeking to declare bankruptcy this week. JC Penney Company Inc. JCP is also considering filing for bankruptcy. Meanwhile,  Nordstrom Inc. JWN is securing new financing and raising debt against real estate.

Macy’s financial position is stronger than its rivals, and its brand name familiar to many Americans. However, since debt issued by the company is considered investment grade, it faces difficulty in garnering funds rapidly as its previously issued debt is subject to strict indentures and restrictions, reports CNBC.

Price Action

Macy’s shares traded 0.38% lower at $5.20 in the after-hours session on Tuesday. The shares had closed the regular session 1.69% lower at $5.22.

Photo Credit: Paulo JC Nogueira via Wikimedia.