Moody's upgrades Michaels

Moody's Investors Service said it upgraded Michaels FinCo Holdings, LLC's corporate family rating to Ba3 from B1, probability of default rating to Ba3-PD from B1-PD and speculative grade liquidity rating to SGL-1 from SGL-2 and Michaels Stores, Inc.'s senior secured term loan due 2020 to Ba2 from Ba3 and 5 7/8% subordinated notes due 2020 to B2 from B3. The outlook is positive.

Subsequent to the upgrades, Moody's will move the corporate family rating, the probability of default rating and the speculative grade liquidity rating to Michael's ultimate parent company, Michaels Cos., Inc.

"The upgrade reflects the reduction in adjusted debt due to changes in Moody's approach for capitalizing operating leases as well as Michaels' continued solid operating performance, cash flow generation and debt reduction," Moody's analyst Mike Zuccaro said in an agency news release.

"The positive outlook reflects our expectation for continued metric improvement over time through profitable growth, with initiatives such as the expansion of exclusive or private label merchandise, investments in store refreshes and remodels, improved omni-channel capabilities, marketing and customer education programs."

The agency said Michaels' Ba3 corporate family rating reflects the company's scale and strong market position in the highly fragmented retail arts and craft segment industry and the relative stability of the industry.

Constraining the rating is Michaels' moderate leverage and continued control by private equity sponsors, Moody’s said.

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