American retailer Macy’s Inc. has been upgraded to BB+ from BB by Fitch. The latest rating action puts the company’s ratings just one notch below investment grade status. Fitch cited Macy’s improving revenue trajectory and strong cost reduction as reasons for the upgrade. The rating agency is penciling in an EBITDA of $2.5bn or above for 2021, with improved EBITDA margins of 10.4% vs. 8.6% before the pandemic. Thereafter, it expects an EBITDA of $2bn for 2022 with a margin of 8% based on more normalized gross margins. Fitch further added that Macy’s recent move of redeeming its $1.3bn of senior secured notes lends confidence to the rating agency that adjusted leverage will be sustained under 3x. Fitch expects the retailer to clock revenues of $23.5bn for 2021, up 36% vs. 2020 and a tad lower than 2019’s 24.6bn.
Macy’s 5.875% bonds due 2029 have been on a tear since issuance at 100 in March to currently trade at 109.2, yielding 3.24%.
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