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Macy Lines Up $162.6 Million in Bailout Funds : Retailing: The fresh cash from some top shareholders will let it trim debt and, some analysts say, avoid filing for bankruptcy.

December 18, 1990|STUART SILVERSTEIN | TIMES STAFF WRITER

Debt-burdened R. H. Macy & Co., easing persistent worries about its financial health, on Monday announced agreements with investors expected to bring the company at least $162.6 million in fresh cash.

Some analysts had said that the New York-based retailer, owner of Southern California's Bullock's and I. Magnin stores, could collapse early next year if it suffered a weak Christmas season and failed to attract a big bailout investment.

But the new batch of investment agreements will let the company reduce its debt and "definitely keeps them out of Chapter 11 (bankruptcy) for a year or two," giving Macy's time to turn around its business, said Thomas R. Razukas, an analyst with Fitch Investors Service.

For Macy's forceful chairman, Edward S. Finkelstein, the announcement was an important victory in his campaign to calm the fears of suppliers and lenders. Two weeks ago, Finkelstein lambasted critics in an open letter published in the trade paper Women's Wear Daily.

He insisted at the time that Macy's has no plans to close stores or to sell divisions, and he disputed assertions that this holiday shopping season could "make or break Macy's."

Macy's had announced on Nov. 1 that it was planning to raise about $150 million through a stock offering, with its four biggest shareholders contributing two-thirds of the total. Still, analysts then raised concerns that investors would wait to see how Macy's fared in the crucial holiday shopping season before actually committing any money.

But on Monday, despite a slow economy that has dampened business at Macy's and at other big U.S. retailers, the company said its non-management shareholders agreed to buy $119 million of preferred stock. That deal is expected to close Wednesday.

Most of the money is to come from the four top shareholders--GE Capital Corp., Loews Corp., Mutual Series Fund and Taubman Investment Co.

Another $18.6 million in preferred stock is being sold to "several shopping center developers" led by an affiliate of New York-based Corporate Property Investors.

In addition, Macy's confirmed that it is negotiating a deal with Hong Kong entertainment mogul Sir Run Run Shaw. Macy's said Shaw has agreed in principle to buy $25 million of Macy's preferred stock and has an option to buy $25 million more by March 31.

If that option is exercised, it would bring the total investment from the deals announced Monday to nearly $188 million.

Analysts warned, however, that Macy's still faces big financial problems and will likely need another major investment to cover big interest payments coming due in 1993. The company is weighed down by $5.6 billion in debt, largely from the buyout that took it private in 1986 and the acquisition of the I. Magnin and Bullock's chains in 1988.

"They're not out of the woods yet," said analyst Evan I. Mann of Dillon Read & Co. "This just gives them some breathing room.

Macy's plans to use its new funds to buy back junk bond debt, and it is planning to do the same with its $100 million in proceeds from the expected sale of its credit subsidiaries in January or February. Analyst Barbara Wedelstaedt of the Chicago investment firm Duff & Phelps estimated that the buybacks will save the company $120 million in interest expenses this year and $250 million next year.

The company's various categories of junk bonds, which all trade at depressed prices of less than 50 cents on the dollar, climbed about 2 cents on the dollar.

Macy's announcement follows Friday's news that Carter Hawley Hale Stores, the Los Angeles-based owner of the Broadway-Southern California, cut its burdensome debt load by completing the sale of its Richmond, Va.-based Thalhimers chain to May Department Stores for $317 million.

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