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.