A financing package for Sealy Corp.-the company at the center of the notorious "burning bed" deal of the 1980s bridge loan market-sailed through the loan and bond markets in recent weeks.
On Thursday, Goldman Sachs & Co., J.P. Morgan & Co., and BT Alex. Brown Inc. closed a $550 million loan backing Bain Capital Inc.'s $800 million buyout of Sealy, the nation's largest mattress company.
Originally slated for $520 million, the loan was increased to $550 million to satisfy investor demand.
One week earlier, the same three banks sold a $200 million bond issue for the buyout. The bonds were also oversubscribed.
"It looks like everything is falling into place" for Sealy, said Tom Haag, a fund manager for the Lutheran Brotherhood, Minneapolis.
The smooth syndication of the Sealy loan surprised some lenders, who had expected the mattress company to encounter difficulties in the crowded fourth-quarter leveraged loan market.
The loan was launched on Friday, Nov. 20-a week that saw more than 20 deals come to market.
Sealy is still closely associated with the near-demise of First Boston Corp., which in 1989 extended a bridge loan to the company to finance its LBO. The junk bond market collapsed shortly after what became known as the "burning bed" loan was made, leaving First Boston with a $457 million bridge it could not refinance.
But the Cleveland-based Sealy has come a long way since then, when it was known as the Ohio Mattress Co., observers said.
"While the company is significantly leveraged, Sealy's good business position, stable cash flow, and modest debt repayment could lead to an improved credit profile and positive outlook over the near to medium term," noted Pamela Gelles, an industry analyst with Standard & Poor's Ratings Service, in a report.
The company has a 22% share of the U.S. bedding market, up from 18% in 1996.
The loan's syndication period ended Dec. 1, which was about one week earlier than planned, a member of the bank group said.
"Where you typically would have a two-week turnaround, our deal completely closed out well before that," the banker said. The loan's institutional tranches were oversubscribed by Nov. 24, he added.
The only investors spooked by Sealy's history were foreign banks, the banker explained. But the deal was selling so quickly that the loan's arrangers urged these bankers not to get bogged down in the past, he said.
The involvement of Bain, a highly regarded buyout firm in Boston, also helped boost the deal, investors said. A Bain-led investment group has put an additional $150 million of equity into the buyout, representing 19% of the total transaction value.
"You have a motivated and knowledgeable investor back there," Mr. Haag said. "If they want to see this go public, Bain knows how to do that."
The loan, which closed last week, includes a $100 million five-year revolving credit and a $110 million five-year term loan A tranche, both priced at 225 basis points over the London interbank offered rate. Another $10 million was added to those two tranches during the syndication process, said a source familiar with the deal.
Some $310 million worth of hybrid loan tranches, split into seven-, eight-, and nine-year terms, were so well received by investors that an extra $20 million was added on.
The three hybrid tranches, which featured bond-like call protection, prepayment penalties, and few covenants, were priced respectively at 250 basis points, 275 basis points, and 300 basis points over Libor.