Moody's rates Michaels notes Caa1

Moody's Investors Service said it assigned a Caa1 (LGD5, 85%) rating to Michaels Stores, Inc.'s proposed $260 million senior subordinated notes due 2020. The outlook is stable.

The following ratings remain unchanged: Michaels FinCo Holdings, LLC's B2 corporate family rating, B2-PD probability of default rating, Caa1 (LGD6, 92%) senior PIK toggle notes due 2018 and SGL-2 speculative grade liquidity rating as well as Michaels Stores' Ba3 (LGD2, 26%) senior secured term loan due 2020, B3 (LGD4, 66%) senior notes due 2018 and Caa1 (LGD5, 86%) 11 3/8% senior subordinated notes due 2016.

Proceeds from the proposed notes and cash will be used to fully redeem Michaels' outstanding 11 3/8% notes.

The agency said Michaels' B2 corporate family rating reflects the company's high leverage, with lease-adjusted debt/EBITDA near 6.5 times and interest coverage near two times, and the aggressive financial policies of its financial sponsor owners.

Moody's said the rating also takes into consideration the company's good liquidity position, with no near-dated debt maturities, no financial maintenance covenants in its debt arrangements and access to a sizable asset-based revolver to fund seasonal working capital requirements.

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