Michaels Stores plans $700 million five-year PIK toggle notes in Wednesday drive-by

By Paul A. Harris

Portland, Ore., July 24 - Michaels Stores Inc. plans to price a $700 million offer of five-year senior pay-in-kind toggle notes (expected ratings Caa1/CCC+) in a Wednesday drive-by, according to a market source.

The issuing entities are Michaels FinCo Holdings LLC and Michaels FinCo Inc.

J.P. Morgan Securities LLC, Goldman Sachs & Co., Deutsche Bank Securities Inc., Wells Fargo Securities LLC, Barclays, Morgan Stanley & Co., BofA Merrill Lynch and Credit Suisse Securities (USA) LLC are the joint bookrunners for the Rule 144A and Regulation S for life offer.

The first two interest payments are required to be paid in cash. After that, interest will be required to be paid in cash to the extent that operating company restricted payments are available. Otherwise the PIK option will increase the coupon by 75 basis points over the to-be-determined cash coupon.

The notes become callable in one year at 102.

There is also an IPO call feature providing for the redemption of the entire issue at 102 for the first year and 101 for second year with the proceeds of an equity offering.

Proceeds from the notes will be used to distribute cash to the parent company to fund a cash dividend, distribution or other payment to its equity and equity-award holders.

An investor call was scheduled to take place late Wednesday morning.

Michaels Stores is an Irving, Texas-based arts and crafts retailer.

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