Moody's downgrades Michaels

Moody's Investors Service said it lowered Michaels Stores, Inc.'s corporate family and probability-of-default ratings to Caa1 from B3, $2.3 billion senior secured term loan due 2013 to B3 (LGD3, 42%) from B2 (LGD3, 39%), $750 million senior unsecured notes due 2014 to Caa2 (LGD5, 79%) from Caa1 (LGD5, 78%), $400 million senior subordinated notes due 2016 to Caa3 (LGD6, 91%) from Caa2 and $469 million subordinated discount notes due 2016 to Caa3 (LGD6, 95%) from Caa2 (LGD6, 91%).

The SGL-3 speculative-grade liquidity rating was affirmed.

The outlook is stable.

The agency said the downgrade reflects the company's weak operating performance, which results in a capital structure that Moody's considers increasingly unsustainable at current performance levels. In the fourth fiscal quarter, Michaels reported a decline in same-store sales of 5.6% and a decline in EBITDA of 22%, which increased the debt-to-EBITDA ratio to more than 8.5 times.

The stable outlook reflects Moody's expectations that Michaels will be able to maintain its good liquidity position and the limited level of debt maturing in the near term.

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