TEXT-S&P puts Sealy rating on watch positive on Temper-Pedic deal

Thu Sep 27, 2012 5:18pm EDT

Overview
     -- U.S. based bedding manufacturer Sealy Corp. has agreed to be
acquired by Tempur-Pedic International Inc. (not rated) in a transaction
valued at about $1.3 billion.
     -- We believe that Sealy's credit profile will be stronger following its 
merger with the larger and financially stronger Tempur-Pedic.
     -- We are placing all of our ratings on Sealy and its subsidiary, 
including the 'B' corporate credit rating, on CreditWatch with positive 
implications. 

Rating Action
On Sept. 27, 2012, Standard & Poor's Ratings Services placed all of its 
ratings on Sealy Corp. and its subsidiary, including the 'B' corporate credit 
rating, on CreditWatch with positive implications, meaning we could raise or 
affirm the ratings following the completion of our review.

As of Aug. 26, 2012, Sealy Corp. had $760.5 million of reported debt 
outstanding. 

Rationale
The CreditWatch placement follows the announcement by Tempur-Pedic 
International Inc. that it has made an offer to acquire Sealy Corp. and Sealy 
has accepted, in a deal valued at about $1.3 billion. We understand that 
Tempur-Pedic has received commitments for $1.77 billion in credit facilities 
and a $350 million bridge loan to fund the transaction. Pending regulatory 
approvals, the company expects the transaction to close in the first half of 
2013. We believe the transaction will strengthen Sealy's credit profile 
through a stronger combined business risk profile and improved credit 
measures. Currently, Temper-Pedic has high margins and low leverage, given its 
moderate debt levels. The combination of the two companies will create a $2.7 
billion global bedding manufacturer, with a leading market share of the fast 
growing U.S. specialty bedding segment. 

Currently we view Sealy's business risk profile as "weak" and its financial 
profile as "highly leveraged." We estimate that total adjusted leverage for 
the 12 months ended Aug. 26, 2012, was about 6.4x, and is currently in the 
range of indicative ratios for a highly leveraged financial risk profile, 
which includes leverage of more than 5x. Following this transaction, we 
estimate that pro forma leverage for the combined company could be around 4x, 
closer to indicative ratios for an "aggressive" financial risk profile.  

CreditWatch
We will resolve the CreditWatch listing when more information regarding the 
transaction and related financing becomes available. We will then assess the 
company's financial policy and the impact of the company's new capital 
structure on existing ratings.

Related Criteria And Research
     -- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 
2012
     -- Use of CreditWatch and Outlooks, Sept. 14, 2009
     -- Key Credit Factors: Business And Financial Risks in the Branded 
Consumer Products Industry, Sept. 10, 2008
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Put On CreditWatch
                            To                 From
Sealy Corp.
 Corporate credit rating    B/Watch Pos/--     B/Stable/--

Sealy Mattress Co.
 Senior secured
  10.875% notes due 2016    BB-/Watch Pos      BB-
   Recovery rating          1                  1
  PIK convertible notes 
  due 2016                  B/Watch Pos        B
   Recovery rating          4                  4
 Subordinated
  8.25% notes due 2014      CCC+/Watch Pos     CCC+
   Recovery rating          6                  6


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.