Moody's Downgrades J.W. Childs Portfolio Co.
PE-owned mattress retailer could face further downgrades from rating agency if its performance doesn't improve.
July 25, 2008
Mattress Holdings Corp., a portfolio company of Boston private equity firm J.W. Childs Associates, took a corporate credit rating hit this week, receiving a downgrade from Moody’s Investors Service.
The New York credit rating agency assigned a corporate family rating of B3 to the Houston mattress retailer late Thursday, along with a negative rating outlook. It cited the company’s weak credit metrics, “tight covenant headroom” and its negative comparable store sales trends.
Mattress Holdings, a business with 406 company-owned stores and 54 franchised stores in 19 states, sells a wide range of well-known mattress brands including Sealy, Simmons, Sleep Number, Stearns & Foster and Tempur Pedic, among others.
J.W. Childs acquired the mattress retailer last year for undisclosed terms. The acquirer financed its purchase of the business, which operated under the name Mattress Firm, with $330 million of debt, comprised of $210 million in senior secured debt and a $120 million in senior subordinated loan arranged by UBS, IDD has learned.
J.W. Childs purchased the specialty mattress retailer from Boca Raton, Fla.-based private equity firm Sun Capital Partners, which had owned the company since 2002.
Moody’s said the company’s debt load has increased to seven times cash flow with interest coverage at a ratio of 1.1, and that a weaker macro-economic environment will contribute to limited performance over the next year. In addition, it assigned a B2 rating to Mattress Holdings’ senior secure credit facilities from a previous B1 rating.
Mattress Holdings is estimated to have generated more than $460 million in sales, Moody’s said, through the trailing 12 months that ended on April 29.
The company’s credit ratings might be downgraded further if its performance continues to deteriorate, according to Moody’s. In order to be upgraded, Mattress Holdings would be required to demonstrate sustained improvement in operating performance and positive free cash flow.
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