Negotiators expect Macy's to seek bankruptcy


NEW YORK -- Participants in the negotiations to resuscitate R. H. Macy & Co. said yesterday that the retailer was almost certain to file for bankruptcy protection soon, possibly as early as tomorrow.

Five people who took part in the talks said that no new proposal for providing Macy with much-needed cash has replaced the $1 billion offer from Laurence A. Tisch, the chairman and chief executive of the Loews Corp., which fell through late Friday when the parties could not agree on providing Macy with more favorable terms on its huge debt.

"It's almost impossible to put together another deal like the Loews offer with anything like the speed required at this point," one participant said. "Bankruptcy is really the only choice."

Even if an interested rescuer suddenly emerged, the negotiators said, there is simply not enough time to reach an agreement before Macy has to file for bankruptcy protection.

Macy's banks have cut off its access to money, no one is accepting its credit, and suppliers have shipped few goods to the company's chains, which also include I. Magnin, Bullock's, and several small specialty groups.

Macy's New York-based flagship chain canceled a color advertising insert that was scheduled to appear in several major Sunday newspapers next weekend because it did not have the merchandise featured in the advertisements.

Macy must meet its payroll commitments, if nothing else, or risk being forced into involuntary bankruptcy.

"They're living literally hand to mouth," said one participant in the talks. "Cash that is coming in is barely enough to pay their daily operating expenses. They have no reserves."

A Macy spokesman declined to comment yesterday on the negotiations or the company's plans.

By voluntarily filing for protection under Chapter 11 of the Federal Bankruptcy Code, Macy is likely to be able to borrow cash for its operations, which it desperately needs, because debts incurred under court supervision would be first in line for repayment.

Suppliers, whose warehouses are holding back goods from the company until its financial condition becomes more certain, said yesterday that they wished the retailer would file for bankruptcy protection.

"Everyone has accepted there is going to be a bankruptcy, so let's just get on with it," said Bud Konheim, head of Nicole Miller Ltd., a mid-sized apparel manufacturer. "At this point, they have zero other options because there are no more Tisches in the woods."

On Thursday, Mr. Tisch, whose family controls the Loews Corp., proposed buying Macy for more than $1 billion and paying off its debt. But late Friday, Loews announced that the talks had concluded after it failed to reach an agreement with the Prudential Insurance Company of America, which holds an $811 million mortgage on about half of Macy's 140 department stores. Mr. Tisch wanted Prudential to agree to a lower interest rate than the mortgage calls for.

Some analysts said that the breakdown in the talks might be a sophisticated game of financial chicken between savvy companies and that Mr. Tisch might ultimately come back to the table. But yesterday, Mr. Tisch was said to have flown to Minneapolis for the Super Bowl, which is being broadcast by CBS Inc., of which he is also chairman and chief executive.

With no deals to consider and none in sight, Macy lawyers and investment bankers were spending the weekend trying to cobble together a bankruptcy package.

Remarkably, for a company of its size and sophistication, Macy is hurtling toward bankruptcy largely unprepared.

Lawyers and investment bankers are working feverishly to complete the necessary documents for a bankruptcy filing. As of yesterday, Macy's representatives were still trying to put together a package of short-term financing for use after a bankruptcy filing so the debtor can continue to meet day-to-day expenses such as utility bills, travel costs and payroll.

Edward S. Finkelstein, Macy's chairman and chief executive, was apparently so certain that the company would be saved from filing that he did not have the company's lawyers finish the temporary financing and bankruptcy documents.

Several people close to the negotiations said they believed that Macy was desperately low on cash and could no longer draw on a credit line that it had been using.

In a few months, Macy's situation has grown appreciably worse, as the nation's economic slump slowed consumer spending and the retailer's losses mounted. With its $3.7 billion in debt, Macy faces a regular series of multimillion-dollar interest payments, and it is also obligated to maintain certain levels of cash in the bank to qualify for its bank credit lines.

The Christmas shopping season, the most important part of the year for retailers, was clearly a disappointment and left Macy short of its sales projections.

"Generally, in these situations, the prudent course is to anticipate all possibilities and prepare for all eventualities, as unlikely as they may initially seem," said Harrison J. Goldin, a principal of Goldin Associates Inc., a financial consulting firm

With a bankruptcy filing almost certain, a host of large financial institutions that have been quietly negotiating to overhaul Macy's financial obligations will move to bankruptcy court to continue the discussions. They hope to get back much of the hundreds of millions that they invested in Macy.

In addition, a patchwork of hundreds of individuals and institutions that bought Macy's high-yield bonds to finance the management-led buyout of the company in 1986 will be major creditors in the bankruptcy proceedings.

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