Macy’s Suppliers Lose Backstop Insuring Payment for Goods

(Bloomberg) -- In a sign of how dire things have become for U.S. retailers, insurance companies that guarantee vendors get paid are now refusing to write policies covering Macy’s Inc. and other chains once considered sterling credits.

Coface SA and Euler Hermes Group SAS, two of the largest providers of credit insurance for vendors, have stopped writing policies covering Macy’s, according to people with knowledge of the matter, who asked not to be identified because the process isn’t public.

The loss of credit insurance could complicate the ability of retailers to bounce back after the economic shutdown triggered by the Covid-19 pandemic. Such insurance protects suppliers if a retailer fails to pay them. Losing coverage means vendors will likely seek quicker payment from retailers, which would be a drain on their liquidity, or ship them fewer goods.

While the coronavirus has accelerated a retrenchment, credit insurers have been pulling back from supplying the retail sector or raised prices on existing policies amid a shakeout in the sector, and they are constantly monitoring and adjusting their policies.

Even if department stores remain closed all year, Macy’s, with about $2.2 billion in liquid assets, is among those with “ample liquidity to carry them through 2020,” Bloomberg Intelligence analyst Poonam Goyal wrote in an April 21 note.

A representative for Macy’s declined to comment. A representative for Euler, declining to comment on Macy’s specifically, said in general it expects levels of coverage to decrease because of the downturn. A representative for Coface didn’t respond to requests for comment.

Macy’s has been exploring ways to use its real estate to secure fresh cash and ride out the coronavirus pandemic, Bloomberg earlier reported, and may issue new bonds backed by certain property and other assets to bolster its liquidity.

The department store’s bonds were among the biggest decliners in the high-yield market Monday following a downgrade further into junk by S&P Global Ratings.

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