HBC was taken private this past winter for $2-billion by an investor group led by executive chairman Richard Baker.Cole Burston/The Globe and Mail
Department store chain HBC LP is expected to raise up to US$900-million from a bond sale, money that Canada’s oldest company will use to weather the store closings that came with the novel coronavirus pandemic.
In what would be the latest in a series of debt offerings from retailers forced to close outlets during the crisis, HBC was in talks with banks on Wednesday to raise a significant amount of fresh capital, according to a source familiar with the company’s plans. The Globe and Mail agreed not to name the source because they are not authorized to speak for the company. Reuters first reported the plan to sell US$800-million to US$900-million worth of bonds.
After shutting all its stores in March and seeing sales tumble, HBC finished reopening all of its 89 Hudson’s Bay outlets by late May, while about half of its 41 Saks Fifth Avenue outlets are welcoming shoppers. The Globe reported last month that the company is in the midst of a US$380-million cost-cutting drive and is bolstering its online platforms with services such as same-day delivery.
HBC was taken private this past winter for $2-billion by an investor group led by executive chairman Richard Baker. Most of the money to pay for the buyout came from the sale of HBC stores in Europe. Last month, Mr. Baker told The Globe that HBC went into the pandemic with relatively low debt levels, which gave the chain financial flexibility during the crisis. Mr. Baker said, “I’m obviously bullish on the department store sector.”
An HBC spokesperson declined on Wednesday to comment about a bond offering.
A bond issue by HBC would follow successful offerings in recent weeks from rival chains that are also dealing with the pandemic’s economic fallout. Macy’s Inc. said Monday it had raised US$4.5-billion through bonds and a loan backed by its assets. In April, Nordstrom tapped capital markets for US$600-million.
Other department store chains have been forced to file for bankruptcy protection because of the pandemic, including Saks rival Neiman Marcus Group Inc. and J.C. Penney Co. Inc.
For potential lenders to HBC, the question is how to value its outlets and real estate at a time when the retail industry is in turmoil, with the pandemic accelerating the trend toward shopping online, rather than in stores.
HBC owns or co-owns 79 stores, many located in city centres, and leases the rest of its outlets from landlords, according to a regulatory filing by the company in January, just before it was acquired. As part of the transaction that saw Mr. Baker take HBC private in February, real estate firm CBRE valued its company-owned stores at $5.1-billion, and found the company had a total of $3.5-billion of mortgages on the properties.
HBC’s most valuable real estate is the flagship Saks Fifth Avenue store in downtown Manhattan, which was appraised last year at $2-billion, and secured $1.6-billion of debt. The issue for any lender, including potential HBC bond holders looking to real estate as collateral for their debt, is the value of these properties could decline sharply if the department store shuts down. In discussing the takeover offer from Mr. Baker’s group, HBC said in a regulatory filing: “CBRE noted that there would be a material negative impact on the as-is value in the event that Saks Fifth Avenue vacated the premises.”
With files from Reuters
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