Simmons seeks leverage covenant relief from lenders, offers additional 400 bps plus 100 bps consent fee

By Paul A. Harris

St. Louis, Oct. 22 - Mattress maker Simmons Co. offered its lenders 400 basis points of additional coupon and a 100 bps consent fee for relief from its total leverage and interest coverage covenants, according to market sources.

Goldman Sachs & Co. launched the amendment deal on Tuesday, according to one source, who added that signatures are not due for at least a week.

Pricing on the revolving credit facility and the term loan would increase to Libor plus 600 bps.

In addition Simmons is offering to put in place a 3¼% Libor floor.

Other concessions include a prohibition from paying cash interest on the holding company portions of Simmons' debt, which must be paid in-kind; the super holding company tranche features a 75 bps PIK step-up provision, which will therefore increase pricing to 600 bps from 525 bps.

Simmons also introduced a pricing grid on the revolver and term loan, with two step-ups and two step-downs.

The company is seeking six quarters of covenant relief.

Simmons announced that it has notified its senior lenders that it does not expect to be in compliance with the maximum leverage ratio covenant set forth in the senior credit facility as of Sept. 27, 2008. The senior credit facility provides for a $75 million revolver and a $465 million tranche D term loan facility.

The company completely drew down the revolver following the end of the second quarter of 2008, according to a market source.

Operating leverage, including the revolver drawdown, is estimated at 5.3 times, which is above the 4.5-times covenant threshold, said that source, adding that next year the covenant steps down to 4.0 times.

A banker watching the deal looks for more concessions.

This is significantly more, in terms of coupon and fee, than a lot of other amendments that we have seen, the banker said.

However the ratios they're asking for, in terms of covenant increases, are considerably larger than normal.

"They're a mattress company with a lot of exposure to the housing market, so they have to be hurting pretty bad," the banker said.

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