Sealy gets large commitments on first day of syndication

By Sara Rosenberg

New York, March 18 - Sealy Corp.'s bank meeting was said to be successful with large commitments for the institutional paper already flowing into the books as some investors are attracted by the company's ability to generate cash.

"[I] heard it went exceptionally well," one source said regarding the meeting. "[I hear they] are receiving lots of 'size' early orders."

"I'm sure we'll probably do it since we did Simmons and those companies generate a lot of cash so it's not a bad deal to get involved in," a buyside source said. "Basically [the cash flow generation] tells you that they're going to be able to pay you down pretty quickly or at least pay you back. It's been a pretty solid company in terms of debt service."

The $685 million credit facility consists of a $125 million six-year revolver with an interest rate of Libor plus 250 basis points and a $560 million eight-year term loan with an interest rate of Libor plus 275 basis points that is being offered to investors at par, the source said.

JPMorgan and Goldman Sachs are the lead banks on the deal.

Proceeds, combined with proceeds from a proposed bond offering and equity, will be used to help fund Kohlberg Kravis Roberts & Co.'s approximately $1.5 billion acquisition of Sealy. Substantially all of the Trinity, N.C., bedding manufacturer's existing debt will be refinanced in connection with the transaction.

Under the acquisition agreement, KKR and Sealy management will acquire about 92% of Sealy, with existing shareholders retaining the remaining 8% interest. Sealy is being acquired from a private investment group that includes Bain Capital, Charlesbank Capital Partners, JPMorgan Partners, CIBC Argosy Merchant Fund and BancBoston Capital.

On Thursday, Standard & Poor's rated Sealy's credit facility B+ with a recovery rating of 3, reflecting the expectation that lenders will get meaningful recovery of principal, 50% to 80%, in a default scenario.

"The ratings on Sealy Corp. are based on the company's highly leveraged financial profile, partially mitigated by the company's leading position in the stable, though highly competitive, bedding market and by its steady cash flow," S&P said.

Pro forma for the refinancing, total debt to EBITDA, adjusted for operating leases, will exceed 5.0x, and funds from operations to total debt will be at 9%. EBITDA coverage of interest expense is expected to be in the 3.0x-3.5x range in the intermediate term and total debt to EBITDA is expected to be in the 4.5x-5.0x range, S&P added.

Boyd Gaming April business

Boyd Gaming Corp.'s proposed credit facility and high-yield bond issuance is "expected to come soon" with the anticipation being that the transactions will probably be April business, a source told Prospect News.

Deutsche Bank will be leading the deals. No further specific details on the offerings, including size and structure, are available at this point.

The company is obtaining the new debt in connection with its previously announced merger with Coast Casinos Inc. at which time the debt of two companies is expected to be combined at the Boyd level. Since the merger will create a larger company with more diversified cash flows and larger cash flows, the debt will likely contain more favorable borrowing costs, according to the company.

The debt that will be refinanced through the new credit facility and bond deal includes Coast's existing credit facility, Coast's 9½% bonds due 2009 and Boyd's existing credit facility. Boyd's three outstanding note issues are expected to be unaffected by the refinancing.

Boyd anticipates that the new debt will increase debt to cash flow to the 4¾ range from the current low four times area.

Under the terms of the agreement, Coast will become a wholly owned subsidiary of Boyd Gaming, positioned as a separate operating unit.

The $1.3 billion merger consideration consists of the receipt by Coast shareholders of, on a fully-diluted basis, about $495 million in cash and the issuance of about 19.4 million shares to Coast shareholders. Completion of the transaction is anticipated by mid-2004.

Deutsche Bank acted as financial adviser to Boyd Gaming, and Cravath, Swaine & Moore LLP acted as legal adviser, according to a company news release. Banc of America Securities LLC acted as financial adviser to Coast Casinos, and Gibson Dunn & Crutcher LLP acted as legal adviser.

Boyd Gaming is a Las Vegas gaming company. Coast Casinos is a Las Vegas owner and operator of hotel-casinos.

Home Interiors sees interest

Now that price talk was flexed up on Home Interiors & Gifts Inc.'s term loan B by 50 basis points on Wednesday, the market seems to feel more optimistic and more positive about the deal, according to a market source.

The $320 million term loan B is now talked at Libor plus 375 basis points, up from previous talk of Libor plus 325 basis points.

"There's definitely more interest," the source said. "There are a number of guys that are a lot more interested at this price talk. People put it down at Libor plus 325 but now they're re-engaged."

An increase in pricing on the institutional tranche was expected by some market participants as the deal was previously said to be struggling a little bit to get done on seemingly slightly aggressive pricing.

Home Interiors' existing term loan is priced with an interest rate of Libor plus 450 basis points so even with this flex up, this deal would result in a reduction in interest expense for the company.

The $370 million credit facility (B2/B) also contains a $50 million revolver with an interest rate of Libor plus 275 basis points. Investors get 1% for revolver commitments.

JPMorgan and Bear Stearns are the lead banks on the deal, with JPMorgan listed on the left.

Proceeds will be used to refinance about $169.8 million of existing senior debt, to repurchase all approximately $139 million or a portion of the company's outstanding convertible preferred stock, for general working capital purposes and to pay transaction fees and expenses.

On a pro forma basis after giving effect to the refinancing and the anticipated use of the proceeds from the refinancing, as of Dec. 31, 2003, the company would have had about $474.6 million in total debt, compared to approximately $323.2 million in total debt as of Dec. 31, 2003 on an actual basis.

Home Interiors & Gifts is a Dallas integrated manufacturer and distributor of home decorative accessories.

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