New York, October 15, 2012 -- Moody's Investors Service assigned a B1 rating to Mattress Holding Corp.'s new senior secured credit facilities consisting of a $70 million revolver and a $227 million term loan. At the same time, Moody's affirmed all other existing ratings of Mattress Firm Holding Corporation (Mattress Firm), parent of Mattress Holding Corp, including the B2 corporate family rating, the B2 probability of default rating, and the speculative grade liquidity rating of SGL-2. The outlook is stable.

The dollar-for-dollar refinancing is leverage neutral but credit positive as it extends the company's debt maturities and increases the capacity under its revolver. However, the improvement in Mattress Firm's liquidity is not sufficient to prompt any change in the rating or outlook because of the company's still moderately high debt leverage, concerns around continued weakness in consumer spending, and potential disruptions from the recent mergers among the mattress manufacturers. As the company anniversaries the recent acquisitions and continues to grow organically through store openings and same store sales growth, Moody's expects leverage to gradually head towards the rating agency's stated upgrade trigger barring any significant deterioration in consumer spending.

The refinancing will extend a portion of the term loan by two years to January 2016 from January 2014. Moody's expects the company's cash flow and revolver availability to comfortably cover the unextended term loan tranche which matures in January 2014. The transaction will double the company's revolver capacity to $70 million from $35 million and extend the maturity through January 2015 from January 2013. Moody's expects the company to maintain good near term liquidity provided by cash flow generation and ample availability under the upsized revolver.

The ratings are contingent upon the transaction closing as proposed, and the receipt and review of final documentation.

Ratings assigned for Mattress Holding Corp.:

- $70 million senior secured revolving credit facility rating of B1 (LGD3, 40%)

- $227 million senior secured term loan rating of B1 (LGD3, 40%)

Ratings Affirmed for Mattress Firm Holding Corp.:

- Corporate family rating of B2

- Probability of default rating of B2

- Speculative grade liquidity rating of SGL-2

The following ratings for Mattress Holding Corp. will be withdrawn upon closing of the refinance:

- $35 million senior secured revolving credit facility rating of B1 (LGD3, 39%)

- $227 million senior secured term loan rating of B1 (LGD3, 39%)

RATINGS RATIONALE

The B2 corporate family rating reflects the company's moderately high debt leverage, it's still modest scale, narrow geographic footprint as a regionally concentrated retail chain, its limited product diversification as a specialty retailer, and its aggressive growth strategies. Its susceptibility to cyclical factors that impact discretionary consumer spending is also a rating constraint. At the same time, the rating is supported by the company's good liquidity (as denoted in the SGL-2), its competitive position within its markets of operation, and its expected improvements in its credit metrics.

The stable outlook incorporates Moody's expectation for modest credit metric improvements over the next 12 to 18 months despite continued macroeconomic uncertainty. The outlook also reflects Moody's expectations that Mattress Firm will continue to grow sales and earnings through new store expansion and comparable sales growth.

Moody's would consider an upgrade with expectations for debt/EBITDA sustained below 4.75 times and EBITA/interest expense sustained above 2.25 times for a prolonged period while maintaining good liquidity. Debt/EBITDA was 5.1 times as of July 31, 2012.

Downward rating pressures will rise if macro economic factors and consumer spending deteriorate such that same store sales or margins decline. Ratings could be downgraded if debt/EBITDA was sustained above 6.5 times, EBITA/interest expense fell below 1.25 times, or liquidity materially eroded for any reason.

The principal methodology used in rating Mattress Firm Holding Corp. was the Global Retail Industry Methodology published in June 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Mattress Firm Holding Corp. (Mattress Firm) is a specialty retailer of conventional and specialty mattresses, with over 1,000 of its own stores (including the recently acquired 180 Mattress Giant stores and 35 Mattress XPress stores) and over 100 franchise stores. The company's stores are mostly in the Southern and Midwestern United States primarily operated under the Mattress Firm banner. Revenues for the twelve month period ended July 31, 2012 were about $840 million. The company is publicly traded but J.W. Childs owns about 54%. Mattress Holding Corp. is the sole operating entity of Mattress Firm and the borrower under bank credit facilities.

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Mariko Semetko Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Alexandra S. Parker MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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