Macy's 2008 Annual Report Download - page 76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
January 31, 2009, and February 2, 2008, respectively. The amount of borrowings under this agreement, net of
invested cash and cash equivalent balances by Macy’s, Inc. (“Parent”), increased to its highest level of $163
million on November 28, 2008. As of January 31, 2009, all borrowings under this agreement had been repaid.
Revolving loans under the credit agreement bear interest based on various published rates.
This agreement, which is an obligation of a wholly-owned subsidiary of Macy’s, Inc., is not secured.
However, Parent and each direct and indirect subsidiary of such wholly owned subsidiary of Macy’s, Inc. has
fully and unconditionally guaranteed this obligation, subject to specified limitations.
The Company’s credit agreement was amended in the fourth quarter of 2008 to update both financial
covenants of the agreement. The amended agreement requires the Company to maintain a specified interest
coverage ratio for the latest four quarters of no less than 3.00 (3.25 after October 2010) and a specified leverage
ratio as of and for the latest four quarters of no more than 4.90 (4.75 after October 2009 through October 2010
and then 4.50 thereafter). 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 $500 million from the date of the amended agreement and extraordinary losses less
interest income and non-recurring or extraordinary gains. Debt and net interest are adjusted to exclude the
premium on acquired debt and the resulting amortization, respectively. The Company’s leverage ratio at
January 31, 2009 was 3.66 and its interest coverage ratio for 2008 was 4.32. 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 $2,000 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. Due to conditions in the commercial paper market, the Company was effectively precluded
from issuing and selling commercial paper under its commercial paper program during much of 2008. The
Company had no commercial paper outstanding under its commercial paper program as of January 31, 2009 and
February 2, 2008.
This program, which is an obligation of a wholly-owned subsidiary of Macy’s, Inc., is not secured.
However, Parent has fully and unconditionally guaranteed the obligations.
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