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Moody's eyes Tempur Sealy for downgrade
Moody's Investors Service said it placed Tempur Sealy International Inc.’s ratings under review for downgrade, including the company's Ba1 corporate family rating, the Ba1-PD probability of default rating, and the Ba2 senior unsecured notes ratings. Tempur's speculative grade liquidity rating remains unchanged at SGL-1.
On Tuesday, Tempur announced it plans to buy Mattress Firm Group Inc. for about $4 billion. Tempur plans to fund the acquisition with about $2.7 billion in cash and $1.3 billion in Tempur stock. The deal is expected to close during the second half of 2024 and is subject to customary closing conditions including applicable regulatory approvals.
“Moody's placed the ratings on review for downgrade because Tempur is proposing a significant and leveraging acquisition at a time when its leverage is already elevated for the rating, the economic and housing market slowdown is contributing to weaker mattress demand, there is uncertainty about the sustainable level of mattress purchases following a very strong period of demand during the pandemic, a key competitor could soon emerge from bankruptcy with a more flexible capital structure that supports better reinvestment, and cost inflation is pressuring the EBITDA margin,” the agency said in a press release.
Moody’s said the review will study the strategic operating rationale, the prospective operating performance considering the likelihood of a prolonged economic recession and weak U.S. housing market in the face of high-interest rates, the risk in owning bricks and mortar stores and the new capital structure and free cash flow generation potential including its ability to lower financial leverage within a reasonable period of time following the deal.
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