Following the Fitch upgrade, Moody’s has upgraded Macy’s Retail Holdings to Ba2 from Ba3, two notches below investment grade status based on strong governance, a conservative capital allocation strategy, stronger than expected 2021 earnings and adequate liquidity after the redemption of its first lien notes. The second lien notes now are the only debt secured by the collateral that had previously been pledged to the former first lien notes. Macy’s senior secured notes were upgraded to Baa3 from Ba2. According to Moody’s, the upgrade “reflects its conservative capital allocation strategy which includes its continued prioritization of debt reduction and the reinstatement of a smaller common dividend after its suspension at the onset of the pandemic ”. Despite a normalising consumer spending in fiscal year 2022, Moody’s estimates that Macy’s can maintain debt/EBIDTA around 3.0x. The US’ largest department store chain has a trailing twelve months sales of ~$2.1bn as of July 31. The retailer has adequate liquidity with Moody’s expecting cash in hand of ~$1bn by the end of FY2021 despite repayment of the $1.3bn senior secured notes and the planned repayment of $294mn senior unsecured notes maturing in January 2022. The stable outlook reflects the company’s success in resizing its cost structure and its conservative financial strategy as well as the expectation that Macy’s will maintain a credit profile appropriate for the Ba2 rating as consumer demand normalizes.
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