Irving, Texas-based arts and crafts specialty retailer The Michaels Cos. Inc. reported results below our expectations for the third quarter, leading us to believe the company's competitive standing is weakening. We are downgrading Michaels to 'B+' from 'BB-'. The outlook is stable. At the same time, we are lowering our issue-level rating on the company's term loan to 'BB-' from 'BB+' and revising the recovery rating to '2' from '1'. We are also lowering our issue-level rating on the company's senior unsecured notes to 'B-' from 'B'. The '6' recovery rating is unchanged. The stable outlook reflects our view that ongoing industry headwinds will continue to pressure the company's performance in the next 12 months, while competitor A.C. Moore's liquidation
