On Tuesday, the department store retailer announced the private placement of $1.1 billion aggregate principal amount of senior secured notes due 2025. Macy’s, which saw preliminary first-quarter sales plummet 45.5 percent, said it intends to use the net proceeds plus cash on hand to repay debt incurred under its revolving credit facility and is using real property, either through a first mortgage or deed of trust, as collateral.
The assets will be transferred to a new wholly-owned subsidiary to hold the transferred assets. Once the transfer is completed, Macy’s will enter into a master lease for the sites with the newly created subsidiary for an initial period of ten years, with two five-year renewal rights. As tenant, Macy’s will pay an annual rent at around $150 million. According to a regulatory filing with the Securities and Exchange Commission, three urban properties–Fulton Street, Brooklyn; Union Square, San Francisco; State Street, Chicago–along with 35 stores in select malls and ten distribution centers have been pledged as the underlying collateral for the new notes. “Based on valuations conducted in May 2020, we estimate that these assets have a value of approximately $2.2 billion (assuming the properties are open and operating),” the retailer said in the filing.
The issuance of the new senior notes is conditioned upon the closing of a new asset-based credit agreement.
Outgoing chief financial officer Paula Price said the capital raise covers more than just the amount Macy’s needs to stabilize the business and sales, noting that sales might not fully recover until 2022.
Macy’s tapped the entire $1.5 billion available on its credit facility in the wake of mid-March store closures and staggering furloughs once the CARES Act went into effect. After weeks without stores figuring into the revenue-generating mix, Macy’s has now reopened 270 brick-and-mortar locations, with others offering curbside pickup only.
Baltimore-based Under Armour, which reported a first-quarter net loss of $590 million on a 23 percent revenue drop to $930 million, is also looking to drum up funds to settle its debts. Sales in Q1 dipped 15 percent, mostly due to coronavirus disruption like sweeping store closures amid depressed consumer demand. Wholesale revenue, meanwhile, dropped 28 percent to $592 million, while direct-to-consumer revenue suffered a 14 percent tumble to $284 million.
Last week, the rival to Nike and Adidas priced $440 million aggregate principal amount of its 1.50 percent convertible senior notes due 2024, up from an originally planned $400 million. It tapped $700 million under its revolver when the COVID-19 outbreak forced stores to shut down.
Under Armour said it intends to use a portion of the net proceeds to pay the cost of capped call transactions, which could help limit potential dilution to the firm’s Class C common stock upon conversion of the notes and may help offset the potential cash payments the athletic titan might have to make. The balance, it added, will be used to pay off the money borrowed under its revolving credit facility.
The notes will be sold in a private offering. Initial purchasers have the option, within a 13-day period, to purchase up to an additional $60 million in convertible notes. The sale of the notes is expected to close on May 27, 2020.
Under Armour’s notes will be senior, unsecured obligations, maturing on June 1, 2024. The notes may be converted under certain conditions and settled in shares of Under Armour Class C common stock, cash or a combination of the two at the company’s election.