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Rating Action:

MOODY'S RATES SEALY'S PROPOSED SENIOR UNSECURED LOAN B3; OTHER RATINGS AFFIRMED

30 Mar 2004
MOODY'S RATES SEALY'S PROPOSED SENIOR UNSECURED LOAN B3; OTHER RATINGS AFFIRMED

Approximately $1.2 Billion of Rated Debt Affected.

New York, March 30, 2004 -- Moody's Investors Service assigned a B3 rating to the proposed $100 million senior unsecured term loan of Sealy Mattress Company ("Sealy"), and affirmed the company's existing ratings. The ratings outlook remains stable. The following ratings were affected by this action:

$100 million senior unsecured term loan due 2013, assigned at B3;

Senior implied rating, affirmed at B2;

$125 million senior secured revolving credit facility due 2010, affirmed at B2;

$560 million senior secured term loan B due 2012, affirmed at B2;

$390 million senior subordinated notes due 2014, affirmed at Caa1;

Senior unsecured issuer rating, affirmed at B3.

Borrowings under the senior unsecured loan are expected to correlate with a dollar-for-dollar $100 million reduction in the senior subordinated notes offering (previously proposed at $490 million), and are to be used along with the notes and the senior credit facilities to partially finance the acquisition of Sealy by Kohlberg, Kravis & Roberts. Upon completion of the proposed transaction, Moody's will withdraw its rating on Sealy's existing senior secured credit facilities and subordinated notes. All ratings remain subject to a review of final documentation. The B3 rating on the senior unsecured loan facility reflects its effective subordination to a material amount of senior secured debt, but also recognizes its senior position in the capital structure (pari passu with all senior indebtedness and contractually senior to the subordinated notes) and the benefits of domestic subsidiary guarantees. The agreement with respect to the loan is not expected to contain any financial maintenance covenants, amortization requirements, or excess cash flow mandatory payments. Limitations on indebtedness, asset sales and restricted payments are anticipated to align closely with the subordinated notes' indenture.

As detailed in Moody's downgrade of Sealy's ratings on March 24, 2004, Sealy's ratings are restrained by the company's limited flexibility due to its increased debt levels (largely with floating interest rates) to support its acquisition. The higher leverage levels are concerning due to Sealy's coincident product and operational transition and its ongoing exposure to unfavorable competitive and economic developments. These risks are mitigated in part by management's achievements in repositioning the business to focus on product development, operating efficiency and financial controls; by the leading market position of Sealy's brands (including the premium Stearns & Foster line); and by the favorable long-term growth potential and increasing brand sensitivity of the mattress industry.

The stable ratings outlook reflects Moody's expectation that Sealy will maintain its recent operating gains in coming periods with the support of its Stearns & Foster one-sided product launch, but that substantial debt reduction could be impeded by rollout costs and other efficiency initiatives. Further, Moody's notes that operating gains could moderate into the back half of the year as the company anniversaries the initial launch of its Posturepedic one-sided mattress. Nonetheless, the strong run-rate performance suggested by first quarter sales and profit increases positions the ratings well in the current rating categories. As such, continued operating momentum and concurrent working capital discipline that allows for rapid deleveraging (below 5.5x) could result in positive rating actions in the coming periods. While current rating levels allow cushion for significant one-time costs associated with the company's product transformation and business efficiency plans, weakened credit metrics due to longer-term competitive or operating issues or changing strategic priorities could result in unfavorable rating actions.

Sealy Mattress Company is a wholly owned subsidiary of Sealy Corporation (with corporate headquarters in Trinity, North Carolina) and 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. The company's leading U.S. market share is estimated at around 21%. Sales for the twelve-month period ended February 2004 were approximately $1.2 billion.

New York
Angela Jameson
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

No Related Data.
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