NEW YORK -- Laurence A. Tisch's proposal to rescue R. H. Macy & Co. from its crushing debt load at the expense of its creditors fell through late yesterday, when a major creditor refused to agree to his terms.
In a statement issued last night, Loews Corp., of which Mr. Tisch is chairman and chief executive, said it had ended its discussions to buy Macy. "The Loews proposal was conditioned upon the cooperation of various other parties," the statement said, "but was rejected by a major creditor of Macy's this afternoon."
Macy had told its major suppliers that it would pay for its Christmas merchandise by today, two weeks late.
Financial analysts and retailing experts say the Loews decision to withdraw its offer may have dashed Macy's last hope of avoiding bankruptcy and the stigma and operating restraints it carries. Of course, someone, including Mr. Tisch, could offer another plan.
Loews, which said it had been negotiating for several days, declined to elaborate. A Macy spokesman said the company would not comment on the discussions or the Loews statement.
Discussions on the offer broke down when Prudential Insurance Company of America balked at refinancing the $811 million of mortgage loans it holds on some 70 Macy stores, about half the company's total. It is not known whether Macy's flagship store on 34th Street in Manhattan is one of those stores.
In Maryland, Macy operates department stores at Owings Mills, White Marsh, Hunt Valley and Marley Station malls, and an I. Magnin store at White Flint Mall in Kensington.
Frank McDougal, president of Prudential Mortgage Capital Co., said in an interview yesterday that he was concerned about what might happen to Macy, but emphasized that his company's primary responsibility was to its policyholders.
"Everyone wants to avoid this company filing Chapter 11 if it is at all possible," Mr. McDougal said of Macy. "Our first and foremost job is to protect our policyholders."
xTC As part of his offer to invest more than $1 billion to buy back a large part of Macy's "junk" bonds and get its financial structure into shape, Mr. Tisch asked Prudential to lower the interest rate on the mortgage it holds.
Mr. Tisch controls 17.7 percent of Macy's preferred stock through a Loews subsidiary, L. T. Holdings Inc., and is on the Macy board.
When word of Mr. Tisch's plan got out on Thursday, analysts gave it strong chances of approval. Macy's overwhelming debt is propelling the retailer toward bankruptcy. Although investors were likely to lose much of their original stake in Macy under the Tisch plan, they would receive nothing if the company hobbled into bankruptcy.
But Prudential has more leverage than Macy's equity investors, banks and bondholders, and many analysts see the breakdown in talks as a standoff between two powerful parties.
Even if Macy is forced into bankruptcy, it would emerge operating virtually all of the stores it now operates.
"We feel we are adequately protected with our collateral, and we don't expect to lose any money on the principal," Mr. McDougal said.
Mr. Tisch's proposal was made at a critical time for the company, which operates the Macy's, I. Magnin and Bullock's department store chains and several small specialty stores.
Macy had subtly signaled that it was virtually insolvent when it told its 20,000 suppliers on Jan. 10 that, in order to meet the requirements of its $587.7 million revolving credit line, it would have to postpone payments to them for two weeks.
It assured them at the time that it would send the checks today, but it has not asked its banks to draw on the account.
Several apparel manufacturers said yesterday that they did not expect Macy to send out their checks today. All the major factors who finance shipments to Macy have told their clients they will not guarantee payments on goods sold to the company's stores until some suppliers start receiving checks.
Smaller manufacturers are not likely to ship any more merchandise to Macy without that protection. That could leave Macy's stores short of the new spring merchandise they need to keep shoppers from going to the competition.
Some suppliers are still shipping merchandise to the company, but most of them are only sending parts of orders.
Liz Claiborne Inc., one of the largest apparel manufacturers in the country, declined to comment about Mr. Tisch's proposal or Macy, falling silent after saying publicly for several weeks that it was shipping orders to the retailer.
The price of Macy's "junk" bonds escalated sharply yesterday on news of the Tisch proposal. Lehman Brothers' high-yield bond desk said that the 14.5 percent bonds due in 1998 were quoted at 70 cents on the dollar, up from 58 cents at the start of the day.