Tempur-Pedic plans $1.77 billion credit facility, $350 million notes

By Sara Rosenberg

New York, Sept. 27 - Tempur-Pedic International Inc. has received a commitment for a $1.77 billion senior secured credit facility and plans to issue $350 million of senior unsecured notes to help fund its acquisition of Sealy Corp., according to an 8-K filed with the Securities and Exchange Commission on Thursday.

Bank of America Merrill Lynch is the lead arranger and bookrunner on the deal.

The credit facility consists of a $350 million five-year revolver, a $650 million five-year term loan A and a $770 million seven-year term loan B.

Expected pricing on the revolver and term loan A is Libor plus 250 basis points and on the term loan B is Libor plus 325 bps with a 1% Libor floor.

The revolver will initially have a 50 bps unused fee that can later step-down to 37.5 bps based on leverage.

The term loan B has 101 soft call protection for one year.

Amortization on the term loan A is 5% in years one and two, and 10% each year thereafter. The term loan B amortizes at a rate of 1% per year.

Covenants include a minimum consolidated interest coverage ratio and a maximum consolidated total net leverage ratio.

The credit agreement includes an up to $350 million accordion feature, subject to certain conditions.

As for the notes, the offering is backed by a commitment for a $350 million senior unsecured bridge loan that has pricing of Libor plus 650 bps, increasing by 50 bps every three months until it hits a cap. The tranche has a 1.25% Libor floor.

Under the agreement, Tempur-Pedic is buying Sealy for $2.20 per share and will assume or repay all of Sealy's outstanding convertible and non-convertible debt, for a total transaction value of about $1.3 billion.

Closing is expected in the first half of 2013, subject to customary conditions, including regulatory approvals.

Pro forma leverage will be around 4.0 times, but company officials said in a conference call on Thursday that strong cash flow should enable rapid debt reduction.

Together, Tempur-Pedic and Sealy had combined pro forma adjusted EBITDA of $504 million based on the 12-months ended June 30 for Tempur-Pedic and May 27 for Sealy.

Tempur-Pedic is a Lexington, Ky.-based manufacturer, marketer and distributor of premium mattresses and pillows. Sealy is a Trinity, N.C.-based bedding manufacturer.

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