TEXT - Fitch rates Macy's Inc new notes 'BBB'

Wed Nov 14, 2012 11:37am EST

Nov 14 - Fitch Ratings has assigned an expected rating of 'BBB' to Macy's
Retail Holdings, Inc.'s new $800 million 10- and 30-year senior unsecured notes.
The Rating Outlook is Stable.  Proceeds will be used to refinance a portion of
the bonds due 2015 and 2016 that are currently being tendered as well as
upcoming 2013 debt maturities.  A full rating list is shown below.  

The ratings reflect Macy's strong comparable store sales (comps) trends and 
continued improvement in EBITDA and credit metrics. In addition, the ratings 
reflect Macy's strong and growing market share of the department store sector, 
above-average operating margins, and the company's ability to generate strong 
free cash flow, even in the face of a challenging operating environment. 

Given the strong operating performance, Macy's adjusted debt/EBITDAR has 
improved to 2.6 times (x) in 2011 from 2.8x in 2010 and 3.6x in 2009, bringing 
leverage below pre-recession levels. Fitch expects Macy's to maintain leverage 
in the mid-2.0x range assuming low single-digit growth in comps and EBITDA. A 
leverage ratio of less than 3.0x or management's target of 2.4x - 2.7x, combined
with the ability to grow market share, is consistent with a 'BBB' rating profile
when compared to other large retailers. 

Fitch expects Macy's will continue to take market share over the next three to 
five years on top line growth of 2% - 4% relative to Fitch's industry growth 
expectation of plus/minus 1%.  Macy's is particularly well-positioned in the 
mid-tier department store space which has seen a lot of consolidation over the 
last decade. 

Macy's liquidity remains strong, supported by a cash balance of $1.6 billion as 
of July 28, 2012 and a $1.5 billion credit facility. Macy's generated free cash 
flow (FCF) of approximately $1.2 billion in 2011 and $900 million in 2010. Fitch
expects Macy's to generate annual FCF in the range of $1 billion over the next 
three years, and expects the company to direct this mostly towards share 
repurchases. Fitch expects the company to refinance debt maturities of $407 
million in calendar 2013 and $453 million in 2014.

WHAT COULD TRIGGER A RATING ACTION?

A negative rating action could result in case of a return to negative same-store
sales trends and/or an aggressive financial strategy leading to leverage metrics
increasing to above 3.0x.

A positive rating action could result if Macy's persists in its comps 
outperformance and share gains against increasing pricing competition and 
promotional pressure in the middle market and continues to deleverage to the low
2.0x range.

Fitch rates Macy's as follows: 

Macy's, Inc. (Macy's) 
--Long-term Issuer Default Rating (IDR) 'BBB'.

Macy's Retail Holdings, Inc. (MRHI)
--Long-term IDR 'BBB'; 
--$1.5 billion bank credit facility 'BBB'; 
--Senior unsecured notes and debentures 'BBB'; 
--Short term IDR 'F2'; 
--Commercial paper 'F2'. 
The Rating Outlook is Stable.
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