Macy's Watch: Welcome to Junk Status

Moody's is back to its wicked stop-the-stupid-rally ways by junking Macy's (M). Moody's cut the retailer's unsecured debt rating from Baa3 to Ba2.

The downgrade reflects the sharp deterioration in Macy's credit metrics to levels that are more appropriate for a mid Ba rating" stated Maggie Taylor, Vice President & Senior Credit Officer. "The downgrade also reflects Moody's expectation that Macy's operating performance will continue to be pressured given the current challenging consumer spending environment." Given this, Moody's expects Macy's credit metrics will deteriorate further over the next twelve months to levels that will be weak even for the new Ba2 rating.

Brave investors everywhere disagree with Moody's assessment, and are lapping up every share of M stock they can get their greedy little hands on. Credit deterioration, pension underfunding, declining cash, dividend cuts, dropping earnings: those are for wimps - bring on the paaaaain. It is amazing what a 0.5% beat on otherwise record low ISM readings, together with a few extra cars sold by a soon to be bankrupt company can do to investor sentiment.

Comments

[User 305589:]

Macy's apart, has anyone ever attempted to study Moody's ratings performance? I am not just talking about the AAA-MBS and AAA-CDO scams but also about silly downgrades and weak corporate ratings that turned out as overly pessimistic assessments of rather sound businesses?
If someone simply shut down Moody's tomorrow (which I would really welcome) - would the world be poorer? Apart from a legion of vastly overpaid bond fund managers, that is, who in many cases just rely on Moody's and S&P and Fitch rather that doing their own credit analysis.

Apr 02 03:33 AM

[China Expert:]

Moody's and S&P are and always have been a joke to professionals who know how to do real credit analysis. Good high yield analysts would only use Moody's and S&P reports to wrap fish. I personally can't think of any other practical use. They are notoriously late and notoriously wrong. The only professionals who use them are high grade investors who are either lazy or ignorant when it comes to doing their own analysis. In the end, its this laziness and/or ignorance that created this fiasco. I am amazed that Moody's and S&P still exists ! Boy, they must really spend a lot of money lobbying the right people ! When will this joke of a business ever end ?

Apr 02 08:05 AM

[One of many:]

Nobody is surprised any more at declarations that Macy's is junk. And actually, people who are fed up with Macy's have been buying Macy's stock for some time to gain a vote at the annual shareholders' meeting. Shareholders are the owners of a company. Shareholders are the ones who should be holding bad management accountable, and replacing it if necessary. Check out fieldsfanschicago.org to learn about efforts for change.

Apr 02 09:36 AM

[Larrysyr:]

I've been on the issuer's side of Moody's and S&P. They appear to exist for the sole reason of promoting the bond insurance industry. My employer was downgraded before I went to work there, with seemingly appropriate criticisms from the agencies. After addressing every single criticism over the next few years, no upgrades were forthcoming. Yet on each debt issue, we paid for "credit enhancement," usually bond insurance. I have yet to figure out who, other than the insurers, raters, and, maybe, underwriters, benefitted from this arrangement.

Apr 02 01:53 PM

[notsosmart:]

just forget the rating agencies.they are as bad as macy's.LOL

Apr 02 10:05 PM

[Button:]

It's interesting that brave investors are buying Macy's stock. Nobody is buying its merchandise.

Apr 05 02:41 PM