Moody's shifts Tempur Sealy view to stable

Moody's Investors Service said it changed the outlook for Tempur Sealy International Inc. to stable from negative. Concurrently, Moody's affirmed Tempur Sealy's Ba3 corporate family rating, Ba3-PD probability of default rating and B1 senior unsecured notes rating. Tempur Sealy's speculative grade liquidity rating was upgraded to SGL-2 from SGL-3.

The change in outlook reflects Moody's expectation the company's better-than-anticipated operating performance coupled with management's commitment to a lower leverage target will sustain leverage within Moody's expectations for the rating, the agency said.

Moody's forecasts Tempur Sealy to generate free cash flow of about $275 million-$300 million in 2020 and more than $300 million in 2021, which provides flexibility to repay debt to sustain debt-to-EBITDA leverage below 4x if operating performance were to weaken, the agency said.

“This flexibility is important based on continued weak macroeconomic conditions expected in the second half of 2020, and unemployment that will decline but remain above pre-coronavirus levels in 2021. Moody's believes some of the recent pick-up in mattress sales could be temporary if unemployment remains elevated and that earnings will be volatile over the next year,” Moody’s said in a press release.

The speculative grade liquidity rating upgrade to SGL-2 from SGL-3 reflects Moody's view the company will maintain good liquidity in the year ahead. Tempur Sealy has an undrawn $425 million revolver and as of June 30 had $147 million in cash.

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