Michaels sets price talk, covenant changes in downsized $2.15 billion notes offer, pricing Friday

By Paul A. Harris

Portland, Ore., April 8 – Michaels Cos., Inc. set price talk in a downsized $2.15 billion two-part offering of high-yield notes backing the buyout of the company by Apollo, according to market sources.

The Rule 144A and Regulation S for life deal, which was downsized from $2.3 billion includes a downsized $850 million tranche of seven-year senior secured notes (Ba3/B) callable after 2.5 years at par plus 50% of coupon, talked to yield in the 5 3/8% area, versus initial talk in the 5½% area. The secured notes tranche decreased from $1 billion, with $150 million shifted to the term loan.

A $1.3 billion tranche of eight-year senior unsecured notes (B3/CCC+), callable after three years at par plus 50% of coupon, is talked to yield in the 8% area, versus initial talk of 8% to 8¼%.

In addition to price talk there were covenant changes, covering both tranches, which primarily bear upon how the company may disburse cash and incur additional debt.

A structural change to the call protection increased the duration of a special call provision allowing the issuer to redeem 10% of the secured notes annually at 103 to the life of the bond. That special call had previously been in place only during the non-call period.

Also, a similar special call, allowing the issuer to redeem 10% of the notes annually at 103 during the non-call period, was introduced to the unsecured tranche.

Books close at 4:30 p.m. ET Thursday, and the deal is expected to price on Friday morning.

Joint bookrunner Barclays will bill and deliver. Credit Suisse Securities (USA) LLC, Wells Fargo Securities LLC, Deutsche Bank Securities Inc., RBC Capital Markets LLC, Mizuho Securities USA Inc., BofA Securities Inc., Truist Securities Inc., Citizens Capital Markets Inc., Jefferies LLC, BMO Capital Markets Corp., BNP Paribas Securities Corp. and Goldman Sachs & Co. LLC are also joint bookrunners.

The secured notes are covered by a first priority security interest in substantially all assets other than ABL collateral and a second priority lien on ABL collateral.

Proceeds plus a term loan B, new equity and cash on hand will be used to fund the acquisition of the company by Apollo.

The issuing entity will be Magic MergerCo, Inc., which is to be merged with and into the Michaels Cos., an Irving, Tex.-based specialty provider of arts, crafts, framing, floral, wall decor and seasonal merchandise for Michaels stores and do-it-yourself home decorators.

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