Annual report pursuant to Section 13 and 15(d)

Financing

v3.21.1
Financing
12 Months Ended
Jan. 30, 2021
Debt Disclosure [Abstract]  
Financing

 

7.

Financing

The Company’s debt is as follows:

 

 

 

January 30,

 

 

February 1,

 

 

 

2021

 

 

2020

 

 

 

(millions)

 

Short-term debt:

 

 

 

 

 

 

 

 

3.875% Senior notes due 2022

 

$

450

 

 

$

 

3.45% Senior notes due 2021

 

 

 

 

 

500

 

10.25% Senior debentures due 2021

 

 

 

 

 

33

 

Current portion of other long-term obligations

 

 

2

 

 

 

6

 

 

 

$

452

 

 

$

539

 

Long-term debt:

 

 

 

 

 

 

 

 

8.375% Senior secured notes due 2025

 

$

1,300

 

 

$

 

6.65% Senior secured debentures due 2024

 

 

81

 

 

 

 

6.7% Senior secured debentures due 2028

 

 

74

 

 

 

 

8.75% Senior secured debentures due 2029

 

 

13

 

 

 

 

7.875% Senior secured debentures due 2030

 

 

5

 

 

 

 

6.9% Senior secured debentures due 2032

 

 

5

 

 

 

 

6.7% Senior secured debentures due 2034

 

 

183

 

 

 

 

9.5% amortizing debentures due 2021

 

 

 

 

 

2

 

9.75% amortizing debentures due 2021

 

 

 

 

 

1

 

3.875% Senior notes due 2022

 

 

 

 

 

450

 

2.875% Senior notes due 2023

 

 

640

 

 

 

640

 

4.375% Senior notes due 2023

 

 

210

 

 

 

210

 

3.625% Senior notes due 2024

 

 

500

 

 

 

500

 

4.5% Senior notes due 2034

 

 

367

 

 

 

367

 

6.375% Senior notes due 2037

 

 

192

 

 

 

192

 

5.125% Senior notes due 2042

 

 

250

 

 

 

250

 

4.3% Senior notes due 2043

 

 

250

 

 

 

250

 

6.65% Senior debentures due 2024

 

 

41

 

 

 

122

 

7.6% Senior debentures due 2025

 

 

24

 

 

 

24

 

6.79% Senior debentures due 2027

 

 

71

 

 

 

71

 

7.0% Senior debentures due 2028

 

 

105

 

 

 

105

 

6.7% Senior debentures due 2028

 

 

29

 

 

 

103

 

6.9% Senior debentures due 2029

 

 

79

 

 

 

79

 

8.75% Senior debentures due 2029

 

 

 

 

 

13

 

7.875% Senior debentures due 2030

 

 

5

 

 

 

10

 

6.9% Senior debentures due 2032

 

 

12

 

 

 

17

 

6.7% Senior debentures due 2034

 

 

18

 

 

 

201

 

Unamortized debt issue costs and discount

 

 

(77

)

 

 

(20

)

Premium on acquired debt, using an effective interest yield of 5.760% to

   7.144%

 

 

30

 

 

 

34

 

 

 

$

4,407

 

 

$

3,621

 

 

 

 

Interest expense and losses on early retirement of debt are as follows:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(millions)

 

 

 

 

 

Interest on debt

 

$

273

 

 

$

211

 

 

$

269

 

Amortization of debt premium

 

 

(4

)

 

 

(5

)

 

 

(7

)

Amortization of financing costs and debt discount

 

 

23

 

 

 

6

 

 

 

7

 

Interest on capitalized leases

 

 

1

 

 

 

2

 

 

 

2

 

 

 

 

293

 

 

 

214

 

 

 

271

 

Less interest capitalized on construction

 

 

9

 

 

 

9

 

 

 

10

 

Interest expense

 

$

284

 

 

$

205

 

 

$

261

 

Losses on early retirement of debt

 

$

 

 

$

30

 

 

$

33

 

2020 Financing Activities

 

Secured Debt Issuance

On June 8, 2020, the Company issued $1,300 million aggregate principal amount of 8.375% senior secured notes due 2025 (the "Notes"). The Notes bear interest at a rate of 8.375% per annum, which accrues from June 8, 2020 and is payable in arrears on June 15 and December 15 of each year, commencing on December 15, 2020. The Notes mature on June 15, 2025, unless earlier redeemed or repurchased, and are subject to the terms and conditions set forth in the related indenture. The Notes were issued by Macy’s, Inc. and are secured on a first-priority basis by (i) a first mortgage/deed of trust in certain real property of subsidiaries of Macy’s, Inc. that was transferred to subsidiaries of PropCo, a newly created direct, wholly owned subsidiary of Macy’s, Inc., and (ii) a pledge by Propco of the equity interests in its subsidiaries that own such transferred real property. The Notes are, jointly and severally, unconditionally guaranteed on a secured basis by Propco and its subsidiaries and unconditionally guaranteed on an unsecured basis by MRH, a direct, wholly owned subsidiary of Macy’s, Inc. The Company used the proceeds of the Notes offering, along with cash on hand, to repay the outstanding borrowings under the existing $1,500 million unsecured credit agreement.

 

Entry into Asset-Based Credit Facility

On June 8, 2020, the ABL Borrower, an indirect wholly owned subsidiary of the Company, and its parent, the ABL Parent, entered into the ABL Credit Facility with Bank of America, N.A., as administrative agent and collateral agent, and the lenders party thereto. As of January 30, 2021, the ABL Credit Facility provides the ABL Borrower with a $2,941 million revolving credit facility (the “Revolving ABL Facility”), including a swingline sub-facility and a letter of credit sub-facility. The ABL Borrower may request increases in the size of the Revolving ABL Facility up to an additional aggregate principal amount of $750 million. As of January 30, 2021, the Company had $142 million of standby letters of credit outstanding under the ABL Credit Facility, which reduces the available borrowing capacity.  The Company had no borrowings outstanding under the ABL Credit Facility as of January 30, 2021.

Additionally on June 8, 2020 and concurrently with closing the ABL Credit Facility, the ABL Borrower purchased all presently existing inventory, and assumed the liabilities in respect of all presently existing and outstanding trade payables owed to vendors in respect of such inventory, from MRH and certain wholly owned subsidiaries of MRH. The ABL Credit Facility is secured on a first priority basis (subject to customary exceptions) by (i) all assets of the ABL Borrower including all such inventory and the proceeds thereof and (ii) the equity of the ABL Borrower. The ABL Parent guaranteed the ABL Borrower’s obligations under the ABL Credit Facility. The Revolving ABL Facility matures on May 9, 2024.

The ABL Credit Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) 80% (which shall automatically increase to 90% upon the satisfaction of certain conditions, including the delivery of an initial appraisal of the inventory) of the net orderly liquidation percentage of eligible inventory, minus (b) customary reserves. Amounts borrowed under the ABL Credit Facility are subject to interest at a rate per annum equal to (i) prior to the Step Down Date (as defined in the ABL Credit Facility), at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.75% to 3.00% or (b) a base rate plus a margin of 1.75% to 2.00%, in each case depending on revolving line utilization and (ii) after the Step Down Date, at the ABL Borrower’s option, either (a) adjusted LIBOR plus a margin of 2.25% to 2.50% or (b) a base rate plus a margin of 1.25% to 1.50%, in each case depending on revolving line utilization. The ABL Credit Facility also contains customary covenants that provide for, among other

things, limitations on indebtedness, liens, fundamental changes, restricted payments, cash hoarding, and prepayment of certain indebtedness as well as customary representations and warranties and events of default typical for credit facilities of this type.

The ABL Credit Facility also requires (1) the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any fiscal quarter on or after April 30, 2021, if (a) certain events of default have occurred and are continuing or (b) Availability plus Suppressed Availability (each as defined in the ABL Credit Facility) is less than the greater of (x) 10% of the Loan Cap (as defined in the ABL Credit Facility) and (y) $250 million, in each case, as of the end of such fiscal quarter and (2) prior to April 30, 2021, that the ABL Borrower not permit Availability plus Suppressed Availability to be lower than the greater of (x) 10% of the Loan Cap and (y) $250 million.

 

Amendment to Existing Credit Agreement

On June 8, 2020, the Company substantially reduced the credit commitments of its existing $1,500 million unsecured credit agreement, which as of January 30, 2021 provided the Company with unsecured revolving credit of up to $1 million.

 

Exchange Offers and Consent Solicitations for Certain Outstanding Debt Securities of MRH

During the second quarter of 2020, MRH completed exchange offers (each, an “Exchange Offer” and, collectively, the “Exchange Offers”) with eligible holders and received related consents in consent solicitations for each series of notes as follows:

(i) $81 million aggregate principal amount of 6.65% Senior Secured Debentures due 2024 (“New 2024 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.65% Senior Debentures due 2024 issued by MRH (“Old 2024 Notes”);

(ii) $74 million aggregate principal amount of 6.7% Senior Secured Debentures due 2028 (“New 2028 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2028 issued by MRH (“Old 2028 Notes”);

(iii) $13 million aggregate principal amount of 8.75% Senior Secured Debentures due 2029 (“New 2029 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 8.75% Senior Debentures due 2029 issued by MRH (“Old 2029 Notes”);

(iv) $5 million aggregate principal amount of 7.875% Senior Secured Debentures due 2030 (“New 2030 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 7.875% Senior Debentures due 2030 issued by MRH (“Old 2030 Notes”);

(v) $5 million aggregate principal amount of 6.9% Senior Secured Debentures due 2032 (“New 2032 Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.9% Senior Debentures due 2032 issued by MRH (“Old 2032 Notes”); and

(vi) $183 million aggregate principal amount of 6.7% Senior Secured Debentures due 2034 (“New 2034 Notes” and, together with the New 2024 Notes, New 2028 Notes, New 2029 Notes, New 2030 Notes and New 2032 Notes, the “New Notes” and each series, a “series of New Notes”) issued by MRH for validly tendered (and not validly withdrawn) outstanding 6.7% Senior Debentures due 2034 issued by MRH (“Old 2034 Notes” and, together with the Old 2024 Notes, Old 2028 Notes, Old 2029 Notes, Old 2030 Notes and Old 2032 Notes, the “Old Notes” and each series, a “series of Old Notes”).

Each New Note issued in the Exchange Offers for a validly tendered Old Note has an interest rate and maturity date that is identical to the interest rate and maturity date of the tendered Old Note, as well as identical interest payment dates and optional redemption prices. The New Notes are MRH’s and Macy’s general, senior obligations and are secured by a second-priority lien on the same collateral securing the Notes.  Following the settlement, the aggregate principal amounts of each series of Old Notes outstanding are: (i) $41 million Old 2024 Notes, (ii) $29 million Old 2028 Notes, (iii) $5 million Old 2030 Notes, (iv) $12 million Old 2032 Notes and (v) $18 million Old 2034 Notes.

In addition, MRH solicited and received consents from holders of each series of Old Notes (each, a “Consent Solicitation” and, collectively, the “Consent Solicitations”) pursuant to a separate Consent Solicitation Statement to adopt certain proposed amendments to the indenture governing the Old Notes (the “Existing Indenture”) to conform certain provisions in the negative pledge covenant in the Existing Indenture to the provisions of the negative pledge covenant in MRH’s most recent indenture (the “Proposed Amendments”). MRH received consents from holders of (i)

$85 million aggregate principal amount of outstanding Old 2024 Notes, (ii) $77 million aggregate principal amount of outstanding Old 2028 Notes, (iii) $13 million aggregate principal amount of outstanding Old 2029 Notes, (iv) $5 million aggregate principal amount of outstanding Old 2030 Notes, (v) $million aggregate principal amount of outstanding Old 2032 Notes and (vi) $185 million aggregate principal amount of outstanding Old 2034 Notes.

 

2019 Financing Activities

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 Operations during 2019.

 

2018 Financing Activities

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 Operations.

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 Operations during 2018.

Long-Term Debt Maturities

Future maturities of long-term debt are shown below:

 

 

 

(millions)

 

Fiscal year

 

 

 

 

2022

 

$

 

2023

 

 

850

 

2024

 

 

622

 

2025

 

 

1,324

 

2026

 

 

 

After 2026

 

 

1,658

 

 

 

Debt Repayments

 

During 2020 and 2019, the Company repaid $533 million and $36 million, respectively, of indebtedness at maturity.

 

The following table shows the detail of debt repayments:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(millions)

 

 

 

 

 

3.45% Senior notes due 2021

 

$

500

 

 

$

 

 

$

 

6.9% Senior debentures due 2029

 

 

 

 

 

113

 

 

 

204

 

4.5% Senior notes due 2034

 

 

 

 

 

 

 

 

183

 

7.0% Senior debentures due 2028

 

 

 

 

 

12

 

 

 

182

 

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

 

6.7% Senior debentures due 2028

 

 

 

 

 

 

 

 

94

 

6.79% Senior debentures due 2027

 

 

 

 

 

 

 

 

94

 

6.375% Senior notes due 2037

 

 

 

 

 

 

 

 

77

 

6.7% Senior debentures due 2034

 

 

 

 

 

 

 

 

63

 

6.9% Senior debentures due 2032

 

 

 

 

 

 

 

 

15

 

8.75% Senior debentures due 2029

 

 

 

 

 

 

 

 

5

 

7.875% Senior debentures due 2030

 

 

 

 

 

 

 

 

2

 

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

 

10.25% Senior debentures due 2021

 

 

33

 

 

 

 

 

 

 

Revolving credit facility

 

 

1,500

 

 

 

 

 

 

 

Other obligations

 

 

 

 

 

 

 

 

1

 

 

 

$

2,039

 

 

$

567

 

 

$

1,101

 

 

The following summarizes certain components of the Company’s other debt obligations:

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 provided for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which could increase 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 could be requested by the Company and agreed to by the lenders.  On March 19, 2020, due to the impacts of the COVID-19 pandemic, the Company elected to draw on the full $1,500 million available under the agreement.  As discussed further above, during the second quarter of 2020, this amount was repaid and the credit agreement was amended and provides the Company with unsecured revolving credit of up to $1 million as of January 30, 2021.  The unsecured revolving credit facility contains covenants that provide for, among other things, limitations on fundamental changes, use of proceeds, and maintenance of property, as well as customary representations and warranties and events of default.  As of January 30, 2021 and February 1, 2020, there were no revolving credit loans outstanding under the credit agreement and there were no borrowings under the agreement in 2019.

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.

Other Financing Arrangements

At February 1, 2020, the Company had $37 million of cash, included in prepaid expenses and other current assets, which was used to collateralize the Company’s issuances of standby letters of credit. There were $142 million and $34 million, respectively, of other standby letters of credit outstanding at January 30, 2021, and February 1, 2020.

Financing Subsequent Event

On March 17, 2021, MRH completed an offering of $500 million in aggregate principal amount of 5.875% senior notes due 2029 (the “2029 Notes”) in a private offering (the “Notes Offering”). The 2029 Notes mature on April 1, 2029. The 2029 Notes are senior unsecured obligations of MRH and are unconditionally guaranteed on a senior unsecured basis by Macy’s, Inc..  MRH used the net proceeds from the Notes Offering, together with cash on hand, to fund a separately announced tender offer in which $500 million of senior notes and debentures were tendered for early settlement and purchased by MRH on March 17, 2021.