S&P rates Mattress Firm revolver BB

Standard & Poor's said it affirmed the B+ corporate credit rating on Mattress Firm Holding Corp. and removed it from CreditWatch negative, where it was placed in December.

The outlook is stable.

The agency also said it affirmed the B+ rating on the company's anticipated $1.42 billion term loan B with a 3 recovery rating, indicating 50% to 70% expected default recovery.

S&P also said it removed the rating from CreditWatch negative.

The agency also said it assigned a BB rating with a 1 recovery rating to the company's new ABL revolver. The 1 recovery rating indicates 90% to 100% expected default recovery.

Mattress Firm recently announced a definitive agreement to purchase HMK Mattress Holdings LLC, the parent company of Sleepy's, which is Mattress Firm’s second largest competitor in the United States. The proposed transaction is debt-financed and valued at about $780 million.

While execution risk remains significant given Sleepy's size, the agency said it believes Mattress Firm has demonstrated an ability to pay-down debt with free operating cash flow and will continue to do so in the coming one to two years, S&P said.

The company will use proceeds from the $730 million term loan B add-on and $50 million from its new ABL to purchase Sleepy's and pay fees and expenses, the agency said.

Mattress Firm will also repay the outstanding term loan and revolver at HMK Mattress Holdings as part of the transaction, S&P said.

Mattress purchases are largely replacement driven and are easily deferred so the sales cycle is highly volatile, the agency said.

But, the acquisition of Sleepy's allows Mattress Firm to extend its reach in the northeastern market and especially New York, where it had a limited presence, S&P said.

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