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Global Credit Research - 10 Dec 2010
New York, December 10, 2010 -- Moody's Investors Service rated National Bedding's (dba Serta) amended
and extended $425 million first lien term loan B1 and affirmed
all other ratings, including the B2 CFR and PDR and $210
million second lien term loan. The outlook remains stable.
The amendment to the first lien term loan extends the maturity date to
November 2013 from February 2013, while at the same time paying
down the first lien by $40 million with cash on hand. The
amendment also revises the payment schedule to a lump sum at maturity
versus $100 million quarterly payments that commenced in Q2 2012
with a bullet final payment. "While the maturity date was
only extended nine months, the revision of the payment schedule
provides a significant boost to Serta's liquidity profile,
especially as they did not renew the revolver when it expired in August,"
said Kevin Cassidy, Senior Credit Officer at Moody's Investors
In addition to revising the first lien payment and maturity schedule,
Serta's liquidity profile is highlighted by cash balances around
$100 million (proforma), generation of $40 million
to $50 million of free cash flow, no near term debt maturities
and lack of financial covenants. Serta's liquidity is constrained
by not having a revolver (although they have historically not used the
revolver) and by the seasonality of its cash flows with cash typically
consumed in the fourth quarter because of working capital increases.
"We believe Serta's financial sponsors, Ares Management
LLC ("Ares") and Ontario Teachers Private Capital ("Teachers")
would provide Serta with additional liquidity given their significant
equity investment in the holding company that owns both Serta and Simmons,"
With a market share approaching 15%, Serta is one of the
top mattress companies in the mid-price segment. The ratings
reflect Moody's expectation that Serta will continue to generate
good free cash flow and have good liquidity. The B2 corporate family
rating also reflects Serta's mixed credit metrics, with adjusted
leverage over 6x, but double digit EBITA margins and interest coverage
over 4x. The B2 rating is constrained by the: integration
risk associated with Simmons as they share common financial sponsors;
volatility in profitability and cash flows experienced during the Great
Recession; modest scale with revenue around $800 million;
and by the continuing uncertainty in discretionary consumer spending,
especially for middle income consumers.
The stable outlook reflects Moody's belief that discretionary consumer
spending for mattresses has materially stabilized, although at reduced
levels. Earnings and cash flow are expected to essentially remain
at their current levels for the near to mid-term, absent
another cliff event as uncertainty prevails among Serta's target
customer of low to middle-end consumers. Maintaining a good
liquidity profile is a condition for the stable outlook.
A downgrade is not likely in the near term. However, the
outlook could turn to negative or even be downgraded if macro-economic
events such as the European Sovereign debt crisis materially affects middle
income discretionary consumer spending. Key credit metrics driving
a potential negative outlook would be leverage approaching 7x --
8x, single digit operating margins or the consumption of operating
cash flow. Key credit metrics driving a potential downgrade would
be leverage approaching 10x and the consumption of cash for a sustained
Positive rating actions could happen if discretionary consumer spending
for low and mid tier consumers were to unexpectedly increase. Key
credit metrics driving a positive outlook would be adjusted leverage below
5x, retained cash flow to net adjusted debt in the high teens and
adjusted operating margins remaining in the double digits. Key
credit metrics driving an upgrade would be adjusted leverage sustained
below 4x and retained cash flow to net adjusted debt above 20%.
For additional information, please refer to our Credit Opinion of
Serta published on Moodys.com.
Rating assigned/assessment revised
$425 million senior amended and extended secured 1st lien term
loan at B1 (LGD 3, 34% from LGD 3, 32%);
Ratings affirmed/assessments revised:
Corporate family rating at B2;
Probability of default rating at B2;
$210 million senior secured second lien at Caa1 (LGD 5, 85%
from LGD 5, 83%)
The last rating action was on December 7, 2009, where Moody's
affirmed all of Serta's rating and revised the outlook to stable.
The principal methodologies used in this rating were Global Consumer Durables
published in October 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
National Bedding Company, based in Hoffman Estates, Illinois,
is a major manufacturer of mattresses under the Serta brand name.
Net sales for the twelve months ended September 30, 2010 approximated
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates National Bedding's amend and extend term loan B1
250 Greenwich Street
New York, NY 10007
No Related Data.
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