Shares in Macy’s, Inc. (M) spiked 17% after the embattled U.S. department store chain said that its refinancing plans will generate “sufficient liquidity” to fund operations until at least fiscal 2021.
Macy’s stock surged 17% to $6.11 in midday U.S. trading. As part of the refinancing plan, Macy’s plans to raise $1.1 billion in aggregate principal amount of senior secured notes due 2025. Proceeds of the sale, along with cash on hand, will be used to repay all of the outstanding amounts under its $1.5 billion revolving credit facility.
The notes will be secured by a number of real estate assets, including three urban properties – Downtown Brooklyn, Union Square and State Street – and 35 stores located in select malls and 10 distribution centers.
Once its credit facility is paid off, Macy’s will enter into a new $3 billion revolving credit line, including a $300 million revolving bridge credit facility that will mature at the end of 2020. The credit facility will be backed by the majority of Macy’s owned inventory and will mature in 2024.
“Upon the completion of the bond offering, as well as our entry into the credit facility, we expect to have more than sufficient liquidity to fund our operations and retire upcoming debt maturities in fiscal 2020 and fiscal 2021,” Macy’s said in a statement.
Macy’s share price nosedived 64% this year after government restrictions to contain the spread of the coronavirus pandemic forced the closure of all of the department chain’s stores and depressed retail sales.
All of the 775 stores of the department chain had been closed since March 18, with some starting to gradually reopen. In an effort to preserve cash, Macy’s had suspended its quarterly dividend, drawn down on its credit line, frozen both hiring and spending, stopped capital spending, canceled some orders and extended payment terms.
Five-star analyst Paul Trussell at Deutsche Bank last week cut Macy’s price target to $5 from $7, citing the management’s expectations that Q2 EBITDA will likely be below Q1 and that margins could be worse. The analyst maintained a Hold rating on the stock.
Overall, Wall Street analysts have a bearish stance on Macy’s stock. The Moderate Sell consensus is based on 7 Sell ratings and 3 Hold ratings. The $4.89 average price target implies 20% downside potential in the shares in the coming 12 months. (See Macy’s stock analysis on TipRanks).
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