Annual report pursuant to Section 13 and 15(d)

Financing

v3.20.1
Financing
12 Months Ended
Feb. 01, 2020
Debt Disclosure [Abstract]  
Financing
Financing
The Company’s debt is as follows:
 
 
February 1,
2020
 
February 2,
2019
 
(millions)
Short-term debt:
 
 
 
8.5% Senior debentures due 2019
$

 
$
36

3.45% Senior notes due 2021
500

 

10.25% Senior debentures due 2021
33

 

Capital lease and current portion of other long-term obligations (a)
6

 
7

 
$
539

 
$
43

Long-term debt:
 
 
 
2.875% Senior notes due 2023
$
640

 
$
750

3.875% Senior notes due 2022
450

 
550

4.5% Senior notes due 2034
367

 
367

3.45% Senior notes due 2021

 
500

3.625% Senior notes due 2024
500

 
500

4.375% Senior notes due 2023
210

 
400

5.125% Senior debentures due 2042
250

 
250

4.3% Senior notes due 2043
250

 
250

6.7% Senior debentures due 2034
201

 
201

6.9% Senior debentures due 2029
79

 
192

6.375% Senior notes due 2037
192

 
192

6.65% Senior debentures due 2024
122

 
122

7.0% Senior debentures due 2028
105

 
117

6.7% Senior debentures due 2028
103

 
103

6.79% Senior debentures due 2027
71

 
71

6.9% Senior debentures due 2032
17

 
17

10.25% Senior debentures due 2021

 
33

7.6% Senior debentures due 2025
24

 
24

8.75% Senior debentures due 2029
13

 
13

7.875% Senior debentures due 2030
10

 
10

9.5% amortizing debentures due 2021
2

 
6

9.75% amortizing debentures due 2021
1

 
3

Unamortized debt issue costs
(13
)
 
(18
)
Unamortized debt discount
(7
)
 
(9
)
Premium on acquired debt, using an effective
interest yield of 5.542% to 7.144%
34

 
39

Capital lease and other long-term obligations (a)

 
25

 
$
3,621

 
$
4,708


(a) As a result of the adoption of ASU 2016-02 on February 3, 2019, capital, or finance, leases were reclassed to lease liabilities within accounts payable and accrued liabilities and long-term lease liabilities on the Consolidated Balance Sheet. See Note 4 for information on leases.

Interest expense and losses (gains) on early retirement of debt are as follows:
 
 
2019
 
2018
 
2017
 
(millions)
Interest on debt
$
211

 
$
269

 
$
332

Amortization of debt premium
(5
)
 
(7
)
 
(9
)
Amortization of financing costs and debt discount
6

 
7

 
7

Interest on capitalized leases
2

 
2

 
2

 
214

 
271

 
332

Less interest capitalized on construction
9

 
10

 
11

Interest expense
$
205

 
$
261

 
$
321

Losses (gains) on early retirement of debt
$
30

 
$
33

 
$
(10
)


During December 2019, the Company completed a tender offer and purchased $525 million in aggregate principal amount of certain senior unsecured notes and debentures. The purchased senior unsecured notes and debentures included $190 million of 4.375% senior notes due 2023, $113 million of 6.9% senior debentures due 2029, $110 million of 2.875% senior notes due 2023, $100 million of 3.875% senior notes due 2022, and $12 million of 7.0% senior debentures due 2028. The total cash cost for the tender offer was $553 million. The Company recognized $30 million of expense related to the recognition of the tender premium and other costs including deferred debt discount amortization. This expense is presented as losses on early retirement of debt on the Consolidated Statements of Income during 2019.

During 2018, the Company repurchased $344 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cost of $354 million, including expenses and other fees related to the transactions. Such repurchases resulted in the recognition of expense of $5 million during 2018 presented as losses on early retirement of debt on the Consolidated Statements of Income.

During December 2018, the Company completed a tender offer and purchased $750 million in aggregate principal amount of certain senior unsecured notes and debentures. The purchased senior unsecured notes and debentures included $164 million of 6.65% senior debentures due 2024, $155 million of 7.0% senior debentures due 2028, $114 million of 6.9% senior debentures due 2029, $103 million of 4.5% senior notes due 2034, $94 million of 6.79% senior debentures due 2027, $35 million of 6.7% senior debentures due 2034, $34 million of 6.375% senior notes due 2037, $34 million of 6.7% senior debentures due 2028, $10 million of 6.9% senior debentures due 2032, $5 million of 8.75% senior debentures due 2029, and $2 million of 7.875% senior debentures due 2030. The total cash cost for the tender offer was $789 million. The Company recognized $28 million of expense related to the recognition of the tender premium and other costs partially offset by the unamortized debt premium associated with this debt. This expense is presented as losses on early retirement of debt on the Consolidated Statements of Income during 2018.

During 2017, the Company completed a tender offer and purchased $400 million in aggregate principal amount of certain senior unsecured notes and debentures. The purchased senior unsecured notes and debentures included $147 million of 6.9% senior debentures due 2032, $108 million of 6.7% senior debentures due 2034, $96 million of 6.375% senior notes due 2037, $43 million of 8.75% senior debentures due 2029, and $6 million of 7.875% senior debentures due 2030. The total cash cost for the tender offer was $423 million. The Company recognized $11 million of income related to the recognition of the unamortized debt premium partially offset by the tender premium and other costs associated with this debt as gains on early retirement of debt. This income is presented as gains on early retirement of debt on the Consolidated Statements of Income during 2017.

During 2017, the Company repurchased $247 million face value of senior notes and debentures. The debt repurchases were made in the open market for a total cash cost of $257 million, including expenses related to the transactions. Such repurchases resulted in the recognition of expense of $1 million during 2017 presented as losses on early retirement of debt on the Consolidated Statements of Income.

Future maturities of long-term debt are shown below:
 
 
(millions)
Fiscal year
 
2021
$
453

2022

2023
850

2024
622

2025
24

After 2025
1,658



During 2019 and 2017, the Company repaid $36 million and $300 million, respectively, of indebtedness at maturity.
The following table shows the detail of debt repayments:
 
2019
 
2018
 
2017
 
(millions)
6.9% Senior debentures due 2029
$
113

 
$
204

 
$
3

4.5% Senior notes due 2034

 
183

 

7.0% Senior debentures due 2028
12

 
182

 
2

4.375% Senior notes due 2023
190

 

 

3.875% Senior notes due 2022
100

 

 

2.875% Senior notes due 2023
110

 

 

6.65% Senior debentures due 2024

 
175

 
4

7.45% Senior debentures due 2017

 

 
300

6.7% Senior debentures due 2028

 
94

 
3

6.79% Senior debentures due 2027

 
94

 

6.375% Senior notes due 2037

 
77

 
231

6.7% Senior debentures due 2034

 
63

 
136

6.9% Senior debentures due 2032

 
15

 
219

8.75% Senior debentures due 2029

 
5

 
43

7.875% Senior debentures due 2030

 
2

 
6

8.5% Senior debentures due 2019
36

 

 

9.5% amortizing debentures due 2021
4

 
4

 
4

9.75% amortizing debentures due 2021
2

 
2

 
2

Capital leases and other obligations (a)

 
1

 
1

 
$
567

 
$
1,101

 
$
954


(a) As a result of the adoption of ASU 2016-02 on February 3, 2019, capital, or finance, leases were reclassed to lease liabilities within accounts payable and accrued liabilities and long-term lease liabilities on the Consolidated Balance Sheet. See Note 4 for information on leases.

The following summarizes certain components of the Company’s debt:
Bank Credit Agreement

On May 9, 2019, the Company entered into a new credit agreement with certain financial institutions that replaced the previous credit agreement which was set to expire on May 6, 2021. Similar to the previous agreement, the new credit agreement provides for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing). The new credit agreement is scheduled to expire on May 9, 2024, subject to up to two one-year extensions that may be requested by the Company and agreed to by the lenders.
As of February 1, 2020 and February 2, 2019, there were no revolving credit loans outstanding under the credit agreements, and there were no borrowings under the agreements during 2019 and 2018. In addition, there were no standby letters of credit outstanding at February 1, 2020 and February 2, 2019. Revolving loans under the credit agreement bear interest based on various published rates.
The Company's credit agreement, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc. (“Parent”), is not secured. However, Parent has fully and unconditionally guaranteed this obligation. The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75. The Company’s interest coverage ratio for 2019 was 12.68 and its leverage ratio at February 1, 2020 was 1.78, in each case as calculated in accordance with the credit agreement. The interest coverage ratio is defined as EBITDA divided by net interest expense and the leverage ratio is defined as debt divided by EBITDA. For purposes of these calculations EBITDA is calculated as net income plus interest expense, taxes, depreciation, amortization, non-cash impairment of goodwill, intangibles and real estate, settlement charges, non-recurring cash charges not to exceed in the aggregate $200 million and extraordinary losses less interest income and non-recurring or extraordinary gains. Net interest is adjusted to exclude the premium on early retirement of debt.
A breach of a restrictive covenant in the Company’s credit agreement or the inability of the Company to maintain the financial ratios described above could result in an event of default under the credit agreement. In addition, an event of default would occur under the credit agreement if any indebtedness of the Company in excess of an aggregate principal amount of $150 million becomes due prior to its stated maturity or the holders of such indebtedness become able to cause it to become due prior to its stated maturity. Upon the occurrence of an event of default, the lenders could, subject to the terms and conditions of the credit agreement, elect to declare the outstanding principal, together with accrued interest, to be immediately due and payable. Moreover, most of the Company’s senior notes and debentures contain cross-default provisions based on the non-payment at maturity, or other default after an applicable grace period, of any other debt, the unpaid principal amount of which is not less than $100 million that could be triggered by an event of default under the credit agreement. In such an event, the Company’s senior notes and debentures that contain cross-default provisions would also be subject to acceleration.
Commercial Paper
The Company is a party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under the bank credit agreement described above. The issuance of commercial paper will have the effect, while such commercial paper is outstanding, of reducing the Company’s borrowing capacity under the bank credit agreement by an amount equal to the principal amount of such commercial paper. There were no borrowings under the program during 2019 and 2018. As of February 1, 2020 and February 2, 2019, there were no remaining borrowings outstanding under the commercial paper program.
This program, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc., is not secured. However, Parent has fully and unconditionally guaranteed the obligations.
Senior Notes and Debentures
The senior notes and the senior debentures are unsecured obligations of a 100%-owned subsidiary of Macy’s, Inc. and Parent has fully and unconditionally guaranteed these obligations (see Note 16, Condensed Consolidating Financial Information).
Other Financing Arrangements
At February 1, 2020 and February 2, 2019, the Company had dedicated $37 million of cash, included in prepaid expenses and other current assets, which is used to collateralize the Company’s issuances of standby letters of credit. There were $34 million and $28 million, respectively, of other standby letters of credit outstanding at February 1, 2020 and February 2, 2019.