S&P downgrades Michaels

S&P said it downgraded the Michaels Cos. to B+ from BB-. Concurrently, S&P downgraded the rating on the company’s term loan to BB- from BB+ and revised the recovery rating to 2 from 1. The agency also trimmed the rating on the company’s senior unsecured notes to B- from B. The 6 recovery rating is unchanged.

“The downgrade follows Michaels’ disappointing third-quarter earnings report and updated guidance for the remainder of the year, which lead us to believe its market share in the arts and crafts industry is eroding,” S&P said in a press release.

The agency said it expects Michaels to generate between $225 million and $250 million of FOCF in 2020 (down from nearly $400 million in 2018) as it believes Michaels will follow an aggressive pricing strategy to draw traffic amid a highly promotional environment, if necessary.

The outlook is stable.

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