Macy’s dived back into the US junk bond market on Monday after a three-year absence as the country’s largest department store chain made a push to take out and refinance its short-term debt maturities.
Like other retailers, the company has had to grapple with a plethora of challenges, including consumers’ shift to online shopping, a pandemic and, most recently, the threat of tariffs.
But over the past few years, the borrower has won favor among the rating agencies as it cut costs, closed stores and deleveraged.
Macy's has also stayed clear of the bond markets, where it last raised financing in March 2022, just after Fitch upgraded it to BBB- from BB+ a month earlier.
That rarity value appealed to certain investors in its latest bond sale – a US$500m eight-year non-call three offering that is rated Ba2/BB+/BBB-
“Macy's does not come to market often and our impression is that their deals get bought and put away,” said one investor who participated in the latest bond deal.
Order books swelled to about US$1.5bn, according to a second investor, before lead-left Wells Fargo priced the deal at par to yield 7.375%, the tight end of price talk of 7.50% area.
The company is using proceeds from the bond, plus about US$300m of cash on hand, to pay down approximately US$760m of notes, S&P said on Monday. Macy’s is targeting notes maturing between 2027 and 2030 through a cash tender and redemptions.
CreditSights analyst said on Monday that Macy’s could have deleveraged more if it had instead bought its longer-dated bonds at steep discounts. Yet, they said, clearing its upcoming maturities still made sense, even though in some cases it was doing so with higher-coupon debt.
Other analysts concurred.
“Although successful completion of this refinancing transaction may moderately increase interest expense, it will more importantly push out near-term debt maturities,” said Evan Mann, a senior high-yield analyst at research firm Gimme Credit.
Furthermore, this latest liability management exercise could cut Macy’s debt by about US$262m and put the borrower on track to achieve a lease-adjusted leverage ratio of around 2.6x, just north of the company’s 2.5x target, according to CreditSights.
Macy’s, meanwhile, still faces a challenging environment amid continuing uncertainty about the outcome of US president Donald Trump’s ever-changing tariff policies.
The unsecured 5.875% 2030s and 6.125% 2032s that were issued during Macy’s last bond sale in 2022 slumped after Trump shocked markets with his Liberation Day tariff announcement on April 2.
Those bonds traded as low as 88.57 and 84.33 on April 9 to yield 8.78% and 9.24%, respectively, according to MarketAxess. But they have since recovered substantially to change hands on Monday at 98.50 and 95.75 for yields of 6.25% and 6.93%, respectively.
With nearly US$1bn of cash on its balance sheet as of May and no material debt maturities in the near term, Macy’s is capable of weathering any immediate downturns in consumer sentiment and higher costs due to increased tariffs, say rating agencies.