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Rating Action:

MOODY'S PLACES SEALY'S RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE

09 Mar 2004
MOODY'S PLACES SEALY'S RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE

Approximately $637 Million of Rated Debt Affected.

New York, March 09, 2004 -- Moody's Investors Service has placed the ratings of Sealy Mattress Company (Sealy) on review for possible downgrade following the recent announcement that the company has signed a definitive agreement to be acquired by affiliates of Kohlberg Kravis Roberts & Co. (KKR).

The following ratings of Sealy Mattress Company were placed on review for possible downgrade:

Senior implied rating of B1;

$259 million senior secured AXEL term loans due 2004-2006 of B1;

Long-term senior unsecured issuer rating of B2;

$250 million 9.875% senior subordinated notes due 12/15/07 of B3;

$128 million 10.875% senior subordinated discount notes due 12/15/07 of B3;

Moody's does not rate Sealy's $50 million senior secured revolving credit facility due November 2004.

KKR agreed to acquire Sealy from a private investment group that includes Bain Capital, Charlesbank Capital Partners, JPMorgan Partners, CIBC Augosy Merchant Fund and BancBoston Capital. The transaction is valued at approximately $1.5 billion, or approximately 9x adjusted fiscal-year 2003 EBITDA (ended November 2003). With the transaction, KKR and Sealy management will acquire approximately 92 percent of Sealy, with current shareholders retaining the remaining 8 percent. Sealy shareholders approved the merger, which is expected to close in April 2004 and be financed through a combination of debt and equity.

The sale of Sealy to a new financial buyer and the level of the valuation suggest the potential for a significant releveraging of Sealy at the same time the company is undergoing a meaningful operational transition, and therefore the possibility of a ratings downgrade. Sealy ended fiscal-year 2003 with approximately 4.6x debt-to-adjusted EBITDA.

Moody's review will focus on the strategic and financial plans of the new owners. In particular, Moody's will assess Sealy's prospective financial flexibility and debt repayment capacity under its new capital structure, and risks related to market/competitive conditions and operational plans. The review will incorporate an evaluation of the sustainability of Sealy's improved sales growth and strong working capital management, which occurred at the end of fiscal 2003. Further, Moody's will evaluate the potential reoccurrence of costs related to its transition to a one-sided mattress, which were a meaningful drag on 2003 reported profits, as well as the opportunity for long-term gains related to management's focus on new products and asset efficiency. Moody's will withdraw its ratings on Sealy's existing debt if it is refinanced in connection with the transaction as is expected.

Sealy Mattress Company is a wholly owned subsidiary of Sealy Corporation, which in turn is majority-owned by affiliates of Bain Capital. Headquartered in Trinity, North Carolina, Sealy Corporation is the world's largest bedding manufacturer. The company manufactures and sells a complete line of mattresses and box springs, including those sold under the Sealy, Sealy Posturepedic, Stearns & Foster and Bassett brand names. Sales for the twelve-month period ending November 30, 2003 were approximately $1.2 billion.

Steven Oman
Senior Vice President
Corporate Finance Group

Kevin L. Ziets, CFA
Asst Vice President - Analyst
Corporate Finance Group

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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