September 8, 2022
Everything old is new again. Back in 2020 Serta Simmons Bedding, LLC was forced to recapitalize, in an effort to reduce its debt load. We wrote 7 articles (!) on the subject, beginning in 2019. Two years later and Serta seems to be in serious trouble again. According to news reports, Moody’s has just downgraded the company and its debt:
DORAVILLE, Ga. – Moody’s Investors Service has downgraded Serta Simmons Bedding’s corporate rating to Ca from Caa3 and said the outlook was negative for the bedding manufacturer based on $1.9 billion of debt it is facing next year and its declining cash reserves.
In addition to the corporate rating, Moody’s downgraded SSB’s probability of default to Ca-PD from Caa3-PD; first lien super-priority first-out term loan to B3 from B2; first lien super-priority term load to Ca from Caa2; and first lien term loan to C from Ca.Sheila Long O’Mara Furniture Today September 7, 2022
Then as now, BDC exposure to Serta is limited. According to Advantage Data, there is only one BDC lender to the privately-held mattress company. That’s Barings BDC (BBDC), which is both a first-lien and second-lien lender. Judging by the IIQ 2022 BBDC valuations, the strain on the business has been recognized as the $3.4mn invested in the second lien was valued at $2.5mn – a (26%) discount. By contrast, the $7.2mn invested in a first lien loan – both of which come due in August 2023 – is carried close to par.
We have downgraded Serta Simmons to CCR 4 from CCR 3, just one quarter after adding the company back to the underperformers' watchlist. We’ll continue to watch this developing story, but given the modest exposure by BBDC, no great impact is expected whatever happens. (We expect a Chapter 11 restructuring not dissimilar to the one that came before is the likeliest outcome).