Macy's acts to amend bank credit facility

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Macy's acts to amend bank credit facility

December 18, 2008

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Cincinnati--Macy's Inc. announced today that it has amended its existing bank credit agreement, led by Bank of America and J.P. Morgan.

The size of the company's credit facility ($2 billion) and its maturity date (Aug. 31, 2012) remained unchanged, providing substantial liquidity for the company to weather the current downturn.

"Macy's is managing its capital structure and credit facilities in a prudent and conservative manner," Macy's Chairman, President and CEO Terry J. Lundgren said in a media release. "While we have remained well within the requirements of the existing bank credit agreement and expect to remain so, we believe it was appropriate to proactively pursue amendments that would permit continued financial flexibility in the current uncertain economic environment. Especially given our strong cash flow and healthy balance sheet, this action should remove any question about the financial strength of Macy's, Inc., including our ability to retire $950 million in debt that is maturing in 2009."

The amendment updates both financial covenants of the bank credit agreement.

First, a leverage covenant moves from debt-to-capitalization to debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization), a more market-based approach that eliminates from the calculation any potential future non-cash goodwill or asset impairment charges.

In addition, the interest coverage ratio was reduced from 3.25 times to 3 times through Oct. 30, 2010, when it then reverts to 3.25.

In return for these changes, fees and pricing were increased, as was credit protection.

Subject to the satisfaction or waiver of specified conditions, all of which are in the company's control, the agreement will become effective on Jan. 5, 2009.

"We have a long and productive relationship with the financial community, and we are pleased that with the ongoing support of our bank group, we are able to provide protection of all of our stakeholders," Lundgren said.

Macy's also noted that it has no current borrowings against this credit agreement, and the 2008 fall season peak borrowing needs (now fully repaid) were $163 million, compared with about $1 billion last year.

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