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Macy’s, American Eagle Eye $5.4B Raise as COVID-19 Costs Pile Up

In the wake of the coronavirus outbreak that has left stores shuttered to stop its spread, retailers have drawn down billions on their credit lines, and now some are moving on to raise debt in an effort to repay their hefty borrowings.

Macy’s is looking to raise up to $5 billion, while teen retailer American Eagle Outfitters launched a $400 million senior note offering. Both follow the launch of PVH’s euro private offering of 3-5/8 percent senior notes and VF Corp.’s pricing on Tuesday of $3 billion of senior notes.

Macy’s is said to be using its inventory as collateral for $3 billion and its real estate assets for another $1 billion to $2 billion, CNBC reported. The struggling department store has already drawn down the entire $1.5 billion that was available in its revolver and now must to find a way to pay down that credit line.

Unlike Neiman Marcus, which is expected to file a voluntary Chapter 11 petition for bankruptcy court protection this week, and J.C. Penney, which is still exploring strategic options that could include a bankruptcy filing, Macy’s is in the fortunate position of owning valuable real estate assets that it can borrow against. Management at the retailer was savvy enough to push back on activist investors who wanted it to monetize those assets by selling off those properties.

The company last month moved to an “absolute minimum workforce,” furloughing 130,000 of its staff as stores continue to remain closed. While the department store retailer plans to bring back employees on a staggered basis, there’s little certainty around when business is expected to resume.

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“As we have previously communicated, the coronavirus pandemic continues to take a toll on Macy’s Inc.’s business…. Macy’s Inc. has taken multiple actions to improve our position and improve financial flexibility… The company is also exploring numerous options to strengthen our capital structure,” a spokeswoman said, reiterating the company’s prior comment on its financial picture.

American Eagle said Wednesday that it intends to offer $400 million in convertible senior notes due 2025 in a private placement, with the option for initial purchasers to buy up to an additional $60 million of notes, also in a private placement. The company said it plans to use the “net proceeds from the proposed offering for general corporate purposes.”

Noteholders will be able to convert their notes under certain circumstances and during specified periods, the company said, adding that it would settle conversions either through cash, shares of its common stock or a combination of both, at American Eagle’s election. The specialty chain, which operates its core American Eagle nameplate and the intimates concept Aerie, drew down $330 million from its revolving credit line, representing a portion of its availability.