Moody's rates HMK loan B2

Moody's Investors Service said it assigned a B2 (LGD3, 40%) rating to the proposed senior secured term loan of HMK Intermediate Holdings LLC, the immediate parent of Sleepy's, LLC.

Moody's also said it assigned to ultimate parent HMK Mattress Holdings LLC a corporate family rating of B3 and a probability of default rating of B3.

The outlook is stable.

The proceeds from the proposed $170 million senior secured term loan, along with $156 million of preferred equity from Calera Capital and about $5 million of cash on hand will be used to repay about $35 million of Sleepy's existing outstanding debt and to pay a $278 million distribution.

The company also intends to refinance its $30 million asset-based revolving credit facility.

The ratings also reflect Sleepy's high lease-adjusted leverage, relatively small scale, narrow geographic footprint as a regionally concentrated retail chain and limited product diversification as a specialty retailer, Moody's said.

Its susceptibility to cyclical factors that impact discretionary consumer spending also is a constraint, the agency said.

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