Financing
The Company’s debt is as follows:
|
| | | | | | | |
| February 1,
2014 | | February 2,
2013 |
| (millions) |
Short-term debt: | | | |
5.75% Senior notes due 2014 | $ | 453 |
| | $ | — |
|
7.625% Senior debentures due 2013 | — |
| | 109 |
|
Capital lease and current portion of other long-term obligations | 10 |
| | 15 |
|
| $ | 463 |
| | $ | 124 |
|
Long-term debt: | | | |
2.875% Senior notes due 2023 | $ | 750 |
| | $ | 750 |
|
5.9% Senior notes due 2016 | 577 |
| | 577 |
|
3.875% Senior notes due 2022 | 550 |
| | 550 |
|
6.375% Senior notes due 2037 | 500 |
| | 500 |
|
7.875% Senior notes due 2015 * | 407 |
| | 407 |
|
4.375% Senior notes due 2023 | 400 |
| | — |
|
6.9% Senior debentures due 2029 | 400 |
| | 400 |
|
6.7% Senior debentures due 2034 | 400 |
| | 400 |
|
7.45% Senior debentures due 2017 | 300 |
| | 300 |
|
6.65% Senior debentures due 2024 | 300 |
| | 300 |
|
7.0% Senior debentures due 2028 | 300 |
| | 300 |
|
6.9% Senior debentures due 2032 | 250 |
| | 250 |
|
5.125% Senior debentures due 2042 | 250 |
| | 250 |
|
4.3% Senior notes due 2043 | 250 |
| | 250 |
|
6.7% Senior debentures due 2028 | 200 |
| | 200 |
|
6.79% Senior debentures due 2027 | 165 |
| | 165 |
|
7.875% Senior debentures due 2036 | 108 |
| | 108 |
|
8.125% Senior debentures due 2035 | 76 |
| | 76 |
|
7.5% Senior debentures due 2015 | 69 |
| | 69 |
|
8.75% Senior debentures due 2029 | 61 |
| | 61 |
|
7.45% Senior debentures due 2016 | 59 |
| | 59 |
|
8.5% Senior debentures due 2019 | 36 |
| | 36 |
|
10.25% Senior debentures due 2021 | 33 |
| | 33 |
|
9.5% amortizing debentures due 2021 | 25 |
| | 29 |
|
7.6% Senior debentures due 2025 | 24 |
| | 24 |
|
7.875% Senior debentures due 2030 | 18 |
| | 18 |
|
9.75% amortizing debentures due 2021 | 14 |
| | 16 |
|
5.75% Senior notes due 2014 | — |
| | 453 |
|
Premium on acquired debt, using an effective interest yield of 5.266% to 6.165% | 176 |
| | 191 |
|
Capital lease and other long-term obligations | 30 |
| | 34 |
|
| $ | 6,728 |
| | $ | 6,806 |
|
________________
| |
* | The rate of interest payable in respect of these senior notes was increased by one percent per annum to 8.875% in April 2009 as a result of a downgrade of the notes by specified rating agencies, was decreased by 0.50 percent per annum to 8.375% effective in May 2010 as a result of an upgrade of the notes by specified rating agencies, was decreased by 0.25 percent per annum to 8.125% effective in May 2011 as a result of an upgrade of the notes by specified rating agencies, and was decreased by 0.25 percent per annum to 7.875%, its stated interest rate, effective in January 2012 as a result of an upgrade of the notes by specified rating agencies. The rate of interest payable in respect of these senior notes could increase by up to 2.0% per annum from its current level in the event of two or more downgrades of the notes by specified rating agencies. |
Interest expense and premium on early retirement of debt is as follows:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
| (millions) |
Interest on debt | $ | 407 |
| | $ | 449 |
| | $ | 467 |
|
Amortization of debt premium | (15 | ) | | (19 | ) | | (23 | ) |
Amortization of financing costs | 7 |
| | 7 |
| | 8 |
|
Interest on capitalized leases | 2 |
| | 3 |
| | 3 |
|
| 401 |
| | 440 |
| | 455 |
|
Less interest capitalized on construction | 11 |
| | 15 |
| | 8 |
|
Interest expense | $ | 390 |
| | $ | 425 |
| | $ | 447 |
|
Premium on early retirement of debt | $ | — |
| | $ | 137 |
| | $ | — |
|
On November 28, 2012, the Company repurchased $700 million aggregate principal amount of its outstanding senior unsecured notes, which had a net book value of $706 million. The repurchased senior unsecured notes had stated interest rates ranging from 5.9% to 7.875% and maturities in 2015 and 2016. The Company recorded the redemption premium and other costs related to these repurchases as additional interest expense of $133 million in 2012. On March 29, 2012, the Company redeemed the $173 million of 8.0% senior debentures due July 15, 2012, as allowed under the terms of the indenture. The price for the redemption was calculated pursuant to the indenture and resulted in the recognition of additional interest expense of $4 million in 2012. The additional interest expense resulting from these transactions is presented as premium on early retirement of debt on the Consolidated Statements of Income.
Future maturities of long-term debt, other than capitalized leases and premium on acquired debt, are shown below:
|
| | | |
| (millions) |
Fiscal year | |
2015 | $ | 481 |
|
2016 | 642 |
|
2017 | 306 |
|
2018 | 6 |
|
2019 | 41 |
|
After 2019 | 5,046 |
|
During 2013, 2012 and 2011, the Company repaid $109 million, $914 million and $439 million, respectively, of indebtedness at maturity.
On September 6, 2013, the Company issued $400 million aggregate principal amount of 4.375% senior notes due 2023, the proceeds of which were used for general corporate purposes.
On January 10, 2012, the Company issued $550 million aggregate principal amount of 3.875% senior notes due 2022 and $250 million aggregate principal amount of 5.125% senior notes due 2042, the proceeds of which were used to retire indebtedness that matured during the first half of 2012.
On November 20, 2012, the Company issued $750 million aggregate principal amount of 2.875% senior unsecured notes due 2023 and $250 million aggregate principal amount of 4.3% senior unsecured notes due 2043. This debt was used to pay for the notes repurchased on November 28, 2012 described above, and to retire $298 million of 5.875% senior unsecured notes that matured in January 2013.
The following table shows the detail of debt repayments:
|
| | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
| (millions) |
7.625% Senior debentures due 2013 | $ | 109 |
| | $ | — |
| | $ | — |
|
5.35% Senior notes due 2012 | — |
| | 616 |
| | — |
|
5.90% Senior notes due 2016 | — |
| | 400 |
| | — |
|
5.875% Senior notes due 2013 | — |
| | 298 |
| | — |
|
7.875% Senior notes due 2015 | — |
| | 205 |
| | — |
|
8.0% Senior debentures due 2012 | — |
| | 173 |
| | — |
|
7.45% Senior debentures due 2016 | — |
| | 64 |
| | — |
|
7.5% Senior debentures due 2015 | — |
| | 31 |
| | — |
|
6.625% Senior notes due 2011 | — |
| | — |
| | 330 |
|
7.45% Senior debentures due 2011 | — |
| | — |
| | 109 |
|
9.5% amortizing debentures due 2021 | 4 |
| | 4 |
| | 4 |
|
9.75% amortizing debentures due 2021 | 2 |
| | 2 |
| | 2 |
|
Capital leases and other obligations | 9 |
| | 10 |
| | 9 |
|
| $ | 124 |
| | $ | 1,803 |
| | $ | 454 |
|
The following summarizes certain components of the Company’s debt:
Bank Credit Agreement
The Company entered into a new credit agreement with certain financial institutions on May 10, 2013 providing for revolving credit borrowings and letters of credit in an aggregate amount not to exceed $1,500 million (which may be increased to $1,750 million at the option of the Company, subject to the willingness of existing or new lenders to provide commitments for such additional financing) outstanding at any particular time. The agreement is set to expire May 10, 2018 and replaced the prior agreement which was set to expire June 20, 2015.
As of February 1, 2014, and February 2, 2013, there were no revolving credit loans outstanding under these credit agreements, and there were no borrowings under these agreements throughout all of 2013 and 2012. However, there were less than $1 million of standby letters of credit outstanding at February 1, 2014 and February 2, 2013. Revolving loans under the credit agreement bear interest based on various published rates.
The Company's credit agreement, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc. (“Parent”), is not secured. However, Parent has fully and unconditionally guaranteed this obligation, subject to specified limitations.The Company’s interest coverage ratio for 2013 was 9.40 and its leverage ratio at February 1, 2014 was 1.85, in each case as calculated in accordance with the credit agreement. The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75. The interest coverage ratio is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) over net interest expense and the leverage ratio is defined as debt over EBITDA. For purposes of these calculations EBITDA is calculated as net income plus interest expense, taxes, depreciation, amortization, non-cash impairment of goodwill, intangibles and real estate, non-recurring cash charges not to exceed in the aggregate $400 million and extraordinary losses less interest income and non-recurring or extraordinary gains. Debt is adjusted to exclude the premium on acquired debt and net interest is adjusted to exclude the amortization of premium on acquired debt and premium on early retirement of debt.
A breach of a restrictive covenant in the Company’s credit agreement or the inability of the Company to maintain the financial ratios described above could result in an event of default under the credit agreement. In addition, an event of default would occur under the credit agreement if any indebtedness of the Company in excess of an aggregate principal amount of $150 million becomes due prior to its stated maturity or the holders of such indebtedness become able to cause it to become due prior to its stated maturity. Upon the occurrence of an event of default, the lenders could, subject to the terms and conditions of the credit agreement, elect to declare the outstanding principal, together with accrued interest, to be immediately due and payable. Moreover, most of the Company’s senior notes and debentures contain cross-default provisions based on the non-payment at maturity, or other default after an applicable grace period, of any other debt, the unpaid principal amount of which is not less than $100 million that could be triggered by an event of default under the credit agreement. In such an event, the Company’s senior notes and debentures that contain cross-default provisions would also be subject to acceleration.
Commercial Paper
The Company is a party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount outstanding at any particular time not to exceed its then-current combined borrowing availability under the bank credit agreement described above. The issuance of commercial paper will have the effect, while such commercial paper is outstanding, of reducing the Company’s borrowing capacity under the bank credit agreement by an amount equal to the principal amount of such commercial paper. The Company had no commercial paper outstanding under its commercial paper program throughout all of 2013 and 2012.
This program, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc., is not secured. However, Parent has fully and unconditionally guaranteed the obligations.
Senior Notes and Debentures
The senior notes and the senior debentures are unsecured obligations of a 100%-owned subsidiary of Macy’s, Inc. and Parent has fully and unconditionally guaranteed these obligations (see Note 16, “Condensed Consolidating Financial Information”).
Other Financing Arrangements
At February 1, 2014 and February 2, 2013, the Company had dedicated $37 million of cash, included in prepaid expenses and other current assets, which is used to collateralize the Company’s issuances of standby letters of credit. There were $34 million of other standby letters of credit outstanding at February 1, 2014 and February 2, 2013.
