US department store Macy’s was upgraded to BB from BB- by S&P. Its second-lien debt was upped to BBB- from BB+ and on its unsecured notes to BB from BB-. Macy’s reported strong operating results and reduced leverage during its Q4 update. Adjusted EBITDA margin rose sharply to 14.6% from 10.1% in 2019 on the back of good cost control, reduced promotional activity and a “successful execution on its Polaris strategy, including inventory optimization, enhanced digital capability and merchandise offering, and a $900 million reduction in sales, general and administrative costs.” Also, the company redeemed $1.3bn in first-lien secured notes in full. Combined with efficient working capital policy, a one-time tax benefit of about $580mn and more than $2bn in free operating cash flow (FOCF), the company’s financial position has improved. While margins are expected to reverse somewhat in 2022 and capex is expected to rise, S&P notes that the conservative policy and using internally generated cash to fund shareholders initiatives helps its risk profile score. A week earlier, Fitch upgraded Macy’s to investment grade ratings of BBB- from BB+, making it a rising star.
Macy’s bonds were stable with its 7% 2028s at 104.83, yielding 6.02%.