R. H. Macy & Co.'s pressing need for cash could force it to sell assets, including its Bullock's and I. Magnin department store chains, analysts said Monday after Macy decided to delay paying its vendors for two weeks.
Left cash-poor by a dismal holiday sales season, Macy told vendors, who had been expecting payment last Friday for their December shipments, that the bills will not be paid until Jan. 25. It said it was forced to delay the payments because it needed what cash it has to repay a bank loan.
In addition, Standard & Poor's Corp. said Monday that it has lowered its ratings on Macy subordinated debt to CCC- from CCC+. About $1.9 billion in rated debt is outstanding, the rating agency said.
"The rating action reflects Macy's weaker-than-anticipated performance during the crucial Christmas season, leading to near-term liquidity pressures," S&P said.
Analysts said Monday that Macy could be forced into bankruptcy protection unless it pays its suppliers by Jan. 25 and quickly unveils another dramatic plan to pay off some of its $3.5 billion in debt and infuse new cash into its sagging, recession-starved operations. A sale of the 22-store Bullock's chain or the 24-store I. Magnin operation is among the choices Macy's faces.
"There are a hundred different variations of what Macy's could do, but the bottom line is that they must reduce their debt and get new cash to keep the business going," said a New York retailing analyst, who estimates that the retailer needs $200 million to $300 million to keep it afloat.
Although Macy executives have repeatedly said they have no intention of filing for protection from creditors, analysts and suppliers expressed doubts that the old-line retailer would make good on its intentions.
"Clearly, some heroic measures are needed in the next two weeks," said Kurt Barnard, publisher of Retailing Industry Reports in New York. "Macy's must send a powerful message to renew the confidence of their suppliers or they won't get any new spring merchandise."
Chairman Edward S. Finkelstein, the largest shareholder in the privately held company, has promised to unveil a comprehensive plan detailing the company's strategy for raising the cash it needs.
A spokesman said the company approaches the task with a "great deal of flexibility." He said it is considering choices ranging from selling stakes in the retailer to existing owners, to finding a new cash-rich partner or selling portions of its assets.
In late 1990, when the company faced a similar cash shortage, Finkelstein found Sir Run Run Shaw, a retired Hong Kong movie mogul, who invested $100 million in Macy's. Analysts said Monday that they expect Finkelstein's first move in his quest for cash to be a call to Shaw.
Although an asset sale is possible, analysts said the current depressed market for retailing operations wouldn't give Macy the prices it would want--and need--for its I. Magnin or Bullock's divisions.
However, analysts noted that a sale would take months, time that Macy can't afford. And they further noted that few retailers in today's depressed selling environment are willing to extend themselves.
Macy's latest cash woes stem from a requirement in its $580-million credit agreement with its bank lenders that forced it to reduce its outstanding bank debt to $150 million for 30 consecutive days. The company paid the debt down in late December and figured to pay its January vendor bills with cash raised from its holiday sales.
However, when those sales proved more dismal than initial projections, the company was forced to decide between paying the bank or its suppliers. It chose the bank and has said it will pay the vendors as soon as the credit-line ceiling rises to $580 million again Jan. 25.
Along Manhattan's Seventh Avenue, where many garment makers are headquartered, Macy's action prompted most suppliers to halt shipments, a move that is not likely to be reversed unless the department store giant is able to pay its bills at month's end.
If suppliers withhold shipments of spring merchandise, Macy's could be forced into bankruptcy--unable to get the goods it needs to operate its business.
So far, its largest suppliers, including Liz Claiborne and Leslie Fay, have pledged to remain loyal.
However, smaller vendors are far more nervous.
"I hope they file for Chapter 11 bankruptcy," said a Los Angeles apparel maker who is owed thousands for his December shipment. "That way we would all do business with them without fear that they wouldn't pay us."