S&P upgrades Michaels loans, rates notes CCC

Standard & Poor's said it assigned a CCC issue-level rating and 6 recovery rating to Michael Stores Inc.'s proposed $800 million 7¾% senior unsecured notes due 2018. The recovery rating indicates an expectation for negligible (0%-10%) recovery in the event of a payment default.

The agency also raising the rating on the company's senior secured term loan tranches to B+ from B and revised the recovery rating to 1 from 2. The recovery rating indicates expectations for very high (90%-100%) recovery in the event of default.

The B- corporate credit rating was affirmed, and the outlook is stable.

The company plans to use the proceeds from the notes offering, along with cash on hand or borrowings under the credit facility or a combination of both, to repurchase its outstanding 10% senior unsecured notes due 2014.

The agency said the higher rating on the loans reflects an increase in its estimated enterprise valuation because of the company's better same-store results and improving operating performance over the past four quarters.

The ratings on Michaels Stores reflect S&P's expectations that sales will be flat to modestly higher, that there will be some widening in operating margins and that credit metrics will improve somewhat but remain characteristic of a low B category credit rating.

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