Michaels Stores rises after earnings; Allison dips with downgrade; LCDX follows stocks up

By Sara Rosenberg

New York, March 10 - Michaels Stores Inc.'s term loan B headed higher on Tuesday after the company came out with fourth-quarter results that showed an improvement in net income and revolver availability.

Also in the secondary market, Allison Transmission Inc.'s term loan B was a little softer with a ratings downgrade, Visteon Corp.'s term loan was flat on news of a bond payment and the LCDX 10 index was stronger with equities.

Michaels Stores up on numbers

Michaels Stores' term loan B gained some ground during the trading session as the company released fourth-quarter earnings, according to traders.

One trader had the term loan B quoted at 52½ bid, 54½ offered, up from 51½ bid, 53½ offered, while a second trader had the debt quoted at 52 bid, 54 offered.

For the fourth quarter, Michaels had net income of $74 million, up $21 million from net income of $53 million for the corresponding period of the prior year.

Net sales for the quarter were $1.268 billion, down 2.5% from $1.301 billion last year with same-store sales declining 5.6%.

And, adjusted EBITDA for the quarter was $207 million, or 16.3% of sales, versus $266 million, or 20.4% of sales, for the same period last year.

Michaels gains more revolver room

Also on Tuesday, Michaels said that, as of March 9, availability under its revolving credit facility was about $594 million. This compares to availability of over $550 million at Jan. 31 - the end of the company's fiscal year.

Also at fiscal year-end, the company's debt levels totaled $3.928 billion, down about $255 million from the third quarter ending balance. However, the debt levels were up $65 million from the prior year.

During the fourth quarter, the company made a $5.9 million amortization payment on its senior secured term loan.

"Our focus during the fourth quarter was on driving sales and maximizing gross margin dollars while effectively clearing through our seasonal merchandise," said Brian C. Cornell, chief executive officer, in a news release.

"In the current environment, we are focused on managing all aspects of the business, including expenses, capital expenditures, cash and liquidity very conservatively," Cornell added.

Michaels is an Irving, Texas-based specialty retailer of arts, crafts, framing, floral, wall décor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator.

Allison Transmission weakens

Allison Transmission's term loan B came off a little in trading as the company's ratings were lowered by Standard & Poor's, according to a trader.

The term loan B was quoted at 60 bid, 62 offered, down from 60½ bid, 62½ offered, the trader said.

On Tuesday, S&P downgraded Allison's corporate credit rating to B from B+ and the issue-level ratings on the company's debt. The outlook is negative.

Allison downgrade reflects industry problems

According to S&P, the downgrade of Allison' ratings was a result of concerns about the company's "high leverage, which we believe will increase during 2009 because of very weak industry demand for commercial vehicles in the company's core North American markets."

The rating agency went on to say that it believes the decline in revenues from industry factors will translate into lower EBITDA and free operating cash flow compared to those in 2008, reducing the company's wherewithal to lower debt beyond its term loan amortization and 2008 cash sweep requirements, unless it taps existing cash balances.

Allison is a Speedway, Ind., designer and manufacturer of automatic transmissions.

Visteon holds steady

Visteon's term loan was pretty much unchanged despite news reports that the company made an interest payment on its bonds that, if missed, had people speculating about bankruptcy, according to a trader.

The interest payment due on Tuesday was for roughly $16 million.

Following the news, the term loan was quoted at 15 bid, 18 offered, in line with previous levels, the trader said.

"No trades, no activity, no reaction," the trader added about the term loan.

Visteon is a Van Buren Township, Mich.-based automotive supplier that designs, engineers and manufactures climate, interior, electronic and lighting products for vehicle manufacturers, and also provides a range of products and services to aftermarket customers.

LCDX better with stocks

In more trading news, the LCDX 10 index posted some gains in sympathy with equities, while the cash market in general was described as unchanged to maybe stronger with very little activity, according to traders.

The index was quoted by one trader at 72.65 bid, 72.90 offered and by a second trader at 72.55 bid, 73 offered. On Monday, the index went out around 70.85 bid, 71.10 offered.

As for stocks, Dow Jones Industrial Average closed up 379.44 points, or 5.8%, Nasdaq closed up 89.64 points, or 7.07%, S&P 500 closed up 43.07 points, or 6.37%, and NYSE closed up 273.07 points, or 6.46%.

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