Moody's Affirms Mattress Firm (MFRM) Ratings Amid Sleep Experts Purchase

Moody's Investors Service affirmed all of Mattress Firm Holding Corp.'s (Nasdaq: MFRM) existing ratings following the company's announcement of its proposed financing for the proposed acquisition of Sleep Experts and recent acquisitions of franchisees Yotes, Inc. and Southern Max, LLC's Virginia operations. The outlook remains positive.

The company will use the proposed $100 million incremental term loan to fund the aggregate $80.5 million acquisition purchase price and repay its outstanding revolver borrowings.

Moody's affirmed Mattress Firm's ratings because the acquisitions will benefit the company strategically by expanding its scale and geographic presence. While the deal will increase debt/EBITDA (Moody's adjusted, including operating leases) initially to the low 5 times on a pro-forma basis (including synergies from purchasing cost reductions), financial risk will not be materially altered.

Moody's retained a positive rating outlook to reflect the potential for leverage to decline and be sustained at lower levels over the near term given pent-up demand for mattresses in a recovering housing market and expected acquisition-related synergies.

Rating actions:

--Issuer: Mattress Firm Holding Corp.

--Corporate Family Rating, affirmed at B2

--Probability of Default Rating, affirmed at B2-PD

--Speculative Grade Liquidity Rating, affirmed at SGL-2

--Positive outlook

--Issuer: Mattress Holding Corp.

----$100 million Senior Secured Revolving Credit Facility due 2016, affirmed at B1 (LGD3, 35%) from B1 (LGD3, 36%)

----$300 million (including the proposed $100 million add-on) Senior Secured Term Loan due 2016, affirmed at B1 (LGD3, 35%) from B1 (LGD3, 36%)

RATINGS RATIONALE

The B2 Corporate Family Rating reflects the company's dependence on discretionary consumer spending and limited product diversification as a specialty retailer. The rating also considers Mattress Firm's high lease-adjusted debt leverage and aggressive expansion strategy, which limits the pace of de-leveraging. At the same time, the rating is supported by the company's good interest coverage, low level of outstanding debt (leases account for the majority of adjusted leverage), good liquidity as reflected in the SGL-2, good market position, and pent-up demand for housing-related consumer durables, including bedding products.

The positive outlook reflects Moody's expectation that the company will achieve good earnings growth through store expansion, same-store sales growth and a successful integration of its 2014 acquisitions, which could result in improved financial leverage over the next twelve to eighteen months.

The ratings could be upgraded if the company achieves planned synergies in the integration of its 2014 acquisitions and demonstrates solid same-store sales growth. An upgrade would require lease-adjusted leverage sustained at or below 5.0 times and EBITA/interest expense sustained above 2.25x, as well as continued good liquidity.

While a downgrade is not likely in the near term, the ratings outlook could revert back to stable if the company's financial policies become more aggressive, or revenue and earnings significantly underperform expectations. Ratings could be downgraded if debt/EBITDA is sustained above 6.5x, EBITA/interest expense falls below 1.25x, or liquidity materially erodes for any reason.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• BofA raises AMD target to $720, sees server CPU TAM tripling to $211B by 2030
• Mizuho bullish on Tower Semiconductor, points to AI optical growth
• KLX Energy narrows Q3 2026 revenue guidance, completes rights offering