Moody's may upgrade Sealy

Moody's Investors Service said it placed Sealy Corp.'s ratings on review for upgrade following the announcement that it agreed to be acquired by Tempur-Pedic in a deal valued at approximately $1.3 billion.

The agency said the SGL-2 speculative grade liquidity rating remains unchanged, but could change if and when a transaction is agreed upon and the financial profile of the post transaction company becomes clearer.

"Although Tempur-Pedic is not currently rated, we think Tempur has a stronger credit profile than Sealy based on its stronger credit metrics, better growth opportunities and sole focus on specialty mattresses, which are the fastest growing segment of the mattress industry," said Kevin Cassidy, a Moody's senior credit officer, in a news release.

"The combined company will have pro forma EBITA margins of around 16% and debt to EBITDA of about 4 times, excluding transaction costs and possible synergies."

"In addition to potential cost and revenue synergies, we think the transaction makes strategic sense because it broadens the product offering across all price points for the combined company, notably in the specialty/premium brands and it also enables the combined entity to capture the pent up demand we think is building in the mid-tier brands," Cassidy said.

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