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01 Nov 2000
MOODY'S UPGRADES SEALY MATTRESS RATINGS; SR. IMPLIED UPGRADED TO Ba3 FROM B1
Approximately $761 Million of Debt Affected
New York, November 01, 2000 -- Moody's Investors Service upgraded the ratings for Sealy Mattress Company
(Sealy), a wholly owned subsidiary of Sealy Corporation (Sealy Corp.),
the parent holding company. The ratings outlook is stable and the
ratings affected are as follows:
$508 million senior secured credit facilities, Ba2 from Ba3;
$125 million 9.875% Gtd. Sr. Sub.
Notes due 2007, B2 from B3;
$128 million (face amount) Gtd. Sr. Sub. Discount
notes due 2007, B2 from B3;
Senior Implied, Ba3 from B1;
Issuer Rating, B1 from B2
The upgrades reflect Sealy's strong operating performance over the last
three years since its December 1997 recapitalization with Bain Capital;
improved leverage and coverage ratios resulting from increased earnings
and the company's ability to generate top line growth (23% from
FYE 1998 to projected FYE 2000, including acquisitions); maintenance
of the number one position, with a 22% market share,
among the top three industry names (Serta/Sleepmaster at 17% and
Simmons at 14%); re-alignment of its own distribution
network to keep pace with shifts in the industry's distribution outlets
and strong name recognition for its Sealy, Posturepedic, Stearns
& Foster and newly acquired, Bassett, name brands.
However, the ratings also reflect Sealy's continued high leverage
and moderate interest coverage as well as the risk of downward pricing
pressure should economic growth slow. The strong economy has encouraged
a shift in sales mix toward more profitable higher-end mattresses,
as well as increased unit growth due to increased home sales. Moody's
believes that a slowdown in economic growth could result in lower average
prices and unit sales growth. This in turn could cause Sealy's,
and the industry's, top-line growth to slow or stagnate and
could in turn pressure operating margins. The ratings take this
factor into account to the extent the company can continue to meet its
debt service in a minor economic downturn.
The ratings also reflect Moody's expectation that Sealy's market position
and cash flow will continue to strengthen and will more firmly support
the company's heavy debt burden. However, because additional
margin improvements could be difficult to achieve, profit enhancements
will need to result from greater capacity and additional market share
gains. It is also expected that the cash Sealy generates in the
future will be retained in the business and utilized to reduce debt or
fund acquisitions, so the company does not increase its debt levels.
Should the latter occur, the ratings may be revised. The
stable outlook is based upon management's plan to maintain operating performance,
increase market share without giving-up margins and selectively
finance acquisitions with cashflow.
Sealy has reported revenue growth driven by focused shifts in distribution
channels, the introduction of new products designs, additional
brand names and several acquisitions, which include the Bassett
Bedding brand and Rozen, a company based in Argentina. The
margin improvements were the result of greater operating efficiencies
and sales at higher price points. The revenue and margin growth
provided Sealy with increased cashflow, and as a result, increased
retained cash available for debt reductions. Sealy Corp.
reported 8/2000 LTM EBITA of $137.5 million (EBITDA of $150.3
million) at a margin of 12.8%, versus 10.6%
for the FYE 11/29/98. EBITA leverage was 5.0x (EBITDA,
4.6x) versus 7.3x (EBITDA, 6.5x) at FYE 11/29/98.
Interest coverage, at 2.3x (2.5 x on an EBITDA basis),
is considered moderate for the rating category, but on a cash interest
basis it increases to 2.9x (3.2x for EBITDA). At
FYE 11/29/98 EBITA total interest coverage was 1.5x. While
LTM retained cash is only a moderate 6.3% of funded debt,
debt coverage (EBITDA less capex to cash interest and principal amortization)
is expected to be approximately 2.0x for FYE 11/2000 and 1.70x
for FYE 2001.
The consolidated balance sheet for Sealy Corp. has not changed
significantly since the 1997 recap with a debt to capital ratio of 117%
and intangibles of $374 million. Although this high level
of intangibles represents 45% of total assets, their carry
value is supported by Sealy Corp.'s strong EBIT return on assets
The mattress industry is dominated by the top three players that account
for 53% of total industry sales of $4.3 billion.
The second tier is composed of 7 companies and the remainder of the segment
is made up of over 700 smaller companies. Over the 5 years 1993-98,
the sales outlets for mattresses shifted from furniture and department
stores to sleep specialty shops. In 1993 furniture and department
stores accounted for 77% and specialty shops were 21%.
In 1998 furniture and department stores dropped to 56% and the
specialty shops increased to 29%. Sealy has made a concerted
effort to move their distribution network to one that mirrors the current
industry mix. Through Sealy Corp.'s investments in Mattress
Holdings International, it has developed exclusive supply agreements
with retailers for distribution of its product.
Headquartered in High Point, North Carolina, Sealy Corporation
is the largest bedding manufacturer in North America. It manufacturers
and sells a complete line of mattress and box springs, including
those sold under the Sealy, Sealy Posturepedic, and Stearns
& Foster brand names. The company's sales for the FYE November
2000 are expected to exceed $1 billion.
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
Nancy J. O'Connor
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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