Michaels’ Debt Trades Off in Secondary as US Tariffs on China Escalate

Apollo-backed Michaels’ bonds and loans have been trading down in the secondary market as concerns rise over U.S.-imposed tariffs on China that could affect the arts and crafts retailer’s ability to originate products from the country, according to sources.

Michaels’ $1.8 million 2028 term loan was last quoted today at 78.5/80.5, down 4 points from last week, when it was trading in the low 80s. Michaels’ 5.25% yield 2028 bond was last quoted today at 73/74, down a few points from the last few weeks, according to Solve. Michaels’ 7.875% 2029 bond was last quoted today at 58.75/60.25, down a couple points from last week, according to Solve.

One trader flagged that Michaels’ loans were trading in the low 80s last week, while its bonds have been trading even lower. Although the trader recognized that Michaels is a company to be concerned about in terms of its tariff risk, they cautioned that there are many diverging opinions about it.

For example, the trader noted that one of Michaels’ main competitors, Joann, recently filed for bankruptcy, which increases Michaels’ share of the market. Michaels’ other main competitor is Hobby Lobby. The trader added that Michaels “needs to recover its top line,” noting that the company “keeps leaking, and their occupancy costs are killing them on the margin side.”

“As far as retail goes, I still think there will always be a need for an in-person crafts store,” said one investor who likewise acknowledged both Michaels’ increasing tariff risk and decreasing competition following Joann’s filing. The investor also highlighted that Michaels recently appointed a new CEO after having several months under interim leadership.

A second trader called Michaels a “classic tariff story,” opining that there is no way the company will be able to circumvent the tariffs imposed on China, which, unlike those imposed on Mexico and Canada, will likely remain for the duration of President Donald Trump’s term.

“Sure, there may be some positives about Michaels’ business that help offset some of the tariff impact, but people need to call this what it is,” said the trader. “Michaels was already weak enough, and now it will get destroyed.”

In April 2024, S&P Global Ratings raised its issuer credit rating on Michaels to B- from CCC+ with a stable outlook. The ratings agency noted the stable outlook reflects its expectations that “the company will generate positive FOCF and sustain adjusted leverage in the low- to mid-5x area over the next 12 months.”

In December 2024, Michaels disclosed to lenders that its third-quarter 2024 adjusted EBITDA came in at $126.8 million over revenue of $1.177 billion, in line with the preliminary financial range, Octus, formerly Reorg, reported.

A list of Michaels’ existing CLO lenders can be found in Octus’ CLO Database HERE.

Octus’ secondary analysis of Michaels can be found HERE.

Michaels and Apollo did not respond to a request for comment.