R.H. Macy & Co. of New York, the cash-starved department store giant, said yesterday it is raising $100 million from four of its largest shareholders, the latest in a series of steps to reduce the multibillion-dollar debt burden that threatens the company's survival.
GE Capital Corp., Loews Corp., Mutual Series Fund and Taubman Investment Co., which already control almost 60 percent of Macy's preferred stock, have committed to put up the funds. The retailer has said it plans to sell additional stock.
Macy's executives indicated that the infusion of cash will be used to lower its interest expenses -- an estimated $600 million next year -- by buying back some of its high-yield junk bonds. The bonds have been selling at a deep discount from their original issue price, an indication that investors consider an investment in the retailer quite risky.
"The proceeds should enable us to take advantage of attractive market opportunities to buy back additional subordinated debt," said Edward S. Finkelstein, Macy's chairman and chief executive. "Moreover, this solid support from our largest shareholders speaks eloquently to their commitment to Macy's future."
But analysts see the cash infusion by owners as a defensive measure. The cash would help save the retailer from bankruptcy in the event Macy's was not able to improve results and remove some of its onerous debt.
"This move says that the owners have decided that they cannot allow Macy's to be destroyed, and anybody with big exposure to the chain may also be forced to invest even more," said George Rosenbaum of New York-based Leo J. Shapiro & Associates, a retail consulting firm. "Now they either have to find some more new monied investors or hope that Christmas sales are merry."
Last week, the privately held Macy's revealed that it had lost $215.3 million in the fiscal year ended July 28, compared with a loss of $63 million in fiscal 1989. But sales in the same period went up to $7.27 billion from $6.97 billion.
The announcement yesterday is part of a larger strategy to help the retailer, sinking under a load of debt brought on by a management-led buyout in 1986. The pressure of the debt load has been increasing since last Christmas, when losses increased in the face of intense promotions by other troubled retailers.
In August, Macy's bought back $50 million of its junk bonds with the proceeds of a sale of a 1 percent stake. Then last month, the retailer announced the planned $100 million sale of its credit operations to GE Capital, a move that Macy's said would cut its $4.8 billion debt by $1.5 billion. And last week, the company indicated that it was going to sell "a more substantial equity interest," and intimated that it would come from a new source. It was rumored such a buyer might include a Japanese company.
Such a deal, analysts said, better come quickly, since this holiday season looks even worse than last year for retailers in general, who are expecting their bottom lines to be battered by a shaky economy and fears about the situation in the Middle East. Anxiety about these issues has resulted in the lowest consumer confidence levels in years and retailers are predicting a lackluster holiday.
Macy's is trying to head off last year's financial results by reducing inventory levels and expenses. Finkelstein said these actions and the new money will ensure Macy's continued operation and ability to pay its debts.