Annual report pursuant to Section 13 and 15(d)

Financing

v3.19.1
Financing
12 Months Ended
Feb. 02, 2019
Debt Disclosure [Abstract]  
Financing
Financing
The Company’s debt is as follows:
 
 
February 2,
2019
 
February 3,
2018
 
(millions)
Short-term debt:
 
 
 
8.5% Senior debentures due 2019
$
36

 
$

Capital lease and current portion of other long-term obligations
7

 
22

 
$
43

 
$
22

Long-term debt:
 
 
 
2.875% Senior notes due 2023
$
750

 
$
750

3.875% Senior notes due 2022
550

 
550

4.5% Senior notes due 2034
367

 
550

3.45% Senior notes due 2021
500

 
500

3.625% Senior notes due 2024
500

 
500

4.375% Senior notes due 2023
400

 
400

5.125% Senior debentures due 2042
250

 
250

4.3% Senior notes due 2043
250

 
250

6.7% Senior debentures due 2034
201

 
264

6.9% Senior debentures due 2029
192

 
397

6.375% Senior notes due 2037
192

 
269

6.65% Senior debentures due 2024
122

 
296

7.0% Senior debentures due 2028
117

 
298

6.7% Senior debentures due 2028
103

 
197

6.79% Senior debentures due 2027
71

 
165

6.9% Senior debentures due 2032
17

 
31

8.5% Senior debentures due 2019

 
36

10.25% Senior debentures due 2021
33

 
33

7.6% Senior debentures due 2025
24

 
24

8.75% Senior debentures due 2029
13

 
18

7.875% Senior debentures due 2030
10

 
12

9.5% amortizing debentures due 2021
6

 
10

9.75% amortizing debentures due 2021
3

 
6

Unamortized debt issue costs
(18
)
 
(25
)
Unamortized debt discount
(9
)
 
(13
)
Premium on acquired debt, using an effective
interest yield of 5.542% to 7.144%
39

 
67

Capital lease and other long-term obligations
25

 
26

 
$
4,708

 
$
5,861


 

Interest expense and losses (gains) on early retirement of debt are as follows:
 
 
2018
 
2017
 
2016
 
(millions)
Interest on debt
$
269

 
$
332

 
$
392

Amortization of debt premium
(7
)
 
(9
)
 
(22
)
Amortization of financing costs and debt discount
7

 
7

 
5

Interest on capitalized leases
2

 
2

 
2

 
271

 
332

 
377

Less interest capitalized on construction
10

 
11

 
10

Interest expense
$
261

 
$
321

 
$
367

Losses (gains) on early retirement of debt
$
33

 
$
(10
)
 
$



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.

During August 2016, the Company redeemed at par the principal amount of $108 million of 7.875% senior debentures due 2036, pursuant to the terms of the debentures. Interest expense in 2016 benefited from the recognition of unamortized debt premium associated with this debt.




Future maturities of long-term debt, other than capitalized leases, are shown below:
 
 
(millions)
Fiscal year
 
2020
$
539

2021
553

2022

2023
1,150

2024
622

After 2024
1,807



During 2017 and 2016, the Company repaid $300 million and $636 million, respectively, of indebtedness at maturity.
The following table shows the detail of debt repayments:
 
2018
 
2017
 
2016
 
(millions)
6.9% Senior debentures due 2029
$
204

 
$
3

 
$

4.5% Senior notes due 2034
183

 

 

7.0% Senior debentures due 2028
182

 
2

 

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

 

5.9% Senior notes due 2016

 

 
577

7.875% Senior notes due 2036

 

 
108

7.45% Senior debentures due 2016

 

 
59

9.5% amortizing debentures due 2021
4

 
4

 
4

9.75% amortizing debentures due 2021
2

 
2

 
2

Capital leases and other obligations
1

 
1

 
1

 
$
1,101

 
$
954

 
$
751



The following summarizes certain components of the Company’s debt:
Bank Credit Agreement
The Company entered into a credit agreement with certain financial institutions as of May 6, 2016 providing 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) outstanding at any particular time. The agreement is set to expire May 6, 2021 and replaced the prior agreement which was set to expire May 10, 2018.
As of February 2, 2019, and February 3, 2018, there were no revolving credit loans outstanding under this credit agreement, and there were no borrowings under the agreement during 2018 and 2017. In addition, there were no standby letters of credit outstanding at February 2, 2019 and February 3, 2018. 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 2018 was 11.22 and its leverage ratio at February 2, 2019 was 1.74, 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, non-recurring cash charges not to exceed in the aggregate $300 million and extraordinary losses less interest income and non-recurring or extraordinary gains. Debt is adjusted to exclude the premium on acquired debt and net interest is adjusted to exclude the amortization of premium on acquired debt and 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. During 2016, the Company utilized seasonal borrowings available under this commercial paper program. There were no borrowings under the program during 2018 and 2017. As of February 2, 2019 and February 3, 2018, 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 2, 2019 and February 3, 2018, 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 $28 million of other standby letters of credit outstanding at February 2, 2019 and February 3, 2018.