Creditors fault Macy proposal


NEW YORK -- R. H. Macy & Co. took the wraps off its proposed plan of reorganization yesterday, a complex compromise that seeks to appease all creditors but is contingent in some part on what happens to the retailer in the future.

But just hours after the company disclosed its proposal, Fidelity Investments, the huge mutual fund company that is one of Macy's most powerful senior creditors, made it clear that it would fight Macy's plan.

"The plan of reorganization presented by R. H. Macy & Co. was not the one which Fidelity had negotiated and agreed to with" the reorganization team from Macy, Fidelity said in a statement. "Fidelity will continue to work with the mediator and participate in the mediation process."

Daniel Harmetz, who manages Fidelity's $500 million investment in Macy, was scheduled to meet yesterday with Cyrus Vance, the court-appointed mediator in the Macy case. He was expected to ask Mr. Vance to allow Fidelity to submit its own proposal. Mr. Harmetz declined to comment.

Fidelity had been working with Macy management and the GE Capital Corp., which holds two seats on Macy's board, to put together a plan that valued the company at $3.5 billion.

That plan was scuttled by Laurence Tisch, an influential outside XTC board member who believed the company was more valuable. The plan announced yesterday ultimately values the company at $4.1 billion.

A lower valuation would benefit senior creditors like GE Capital and Fidelity, because they would end up with most of Macy's equity. In many recent bankruptcy cases, stock has ended up being far more valuable than creditors' original claims.

A higher valuation leaves enough left over for unsecured creditors like bondholders -- including Loews Corp., of which Mr. Tisch is chairman -- who might otherwise get nothing.

Fidelity was not the only cranky creditor yesterday. But many creditors declined to comment after Mr. Vance issued a stern reminder that all those present were under court order not to discuss the proposal.

Although the plan proposed by Macy goes a long way toward completely repaying secured creditors, it essentially puts a cap on the returns they will realize. And it promises junior creditors a generous return only if the market places a high value on Macy's equity over a two-year period.

Creditors were also holding their fire in anticipation of a counterproposal from Federated Department Stores Inc., a rival department store company that has sought to use its influence as a senior creditor to push Macy into a merger.

Serious debate has already started over the real value of the $500 million in contingent value that the company is proposing, which are essentially options.

Creditors said yesterday that it seemed to have been hastily cobbled together at the last minute to wring an agreement out of Macy's board, which had been split on the issue of valuing the company.

"In order to effect a consensual plan, you want to give something to the people further down the ladder, and options are a way to do that," said Jeremy Bloomer, director of research at Credit Research.

But the value of the options is difficult to ascertain; in the past, the market has overvalued contingent options, Mr. Bloomer noted.

Under the plan valuing the company at $4.1 billion, $500 million would accrue to creditors only if Macy's stock reaches a trading value of $2.2 billion or more before July 1997.

The other $3.6 billion would be allocated to creditors when Macy emerges from bankruptcy, which the company expects to happen next January. About $2 billion of that value would consist of new debt, $100 million of cash and $1.5 billion of equity.

In general, junior creditors reacted to the company's proposal more positively than did senior creditors. "I think it's a reasonable place to start," said Charles Leeds, a partner at Omega Advisers, a hedge fund that holds about 20 percent of Macy's most senior class of bonds.

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