Simmons Plans Sell Out; Caremark Prescribes Success

Simmons Co.'s credit rating has been put on watch with negative implications by Standard & Poor's after the mattress company notified the Securities and Exchange Commission of its intention to seek a buyer. "The reason the company was placed on credit watch negative [at BB-] is that while I have no info on the buyer, it's likely it will be a private equity investor that would then re-leverage the company," explained Martin Kounitz, an S&P analyst. According to Kounitz, changes in the rating "would depend on who the acquirer is and what they are going to do with the business. What will the pro forma capitalization look like? No one knows until someone has signed a definitive agreement."

The original bank credit, syndicated by Goldman Sachs and Warburg Dillon Read in 1998, totaled $270 million and backed Fenway Partners' acquisition of the company from Investcorp for $500 million. A Simmons' spokesman would only confirm the 8-K had been filed.

* Caremark Rx's plan to acquire rival AdvancePCS has led S&P to place the pharmacy benefit manager's credit rating on watch with positive implications. Caremark's $250 million "B" loan and $300 million revolver are currently rated BBB-. Caremark plans to fund the $6 billion purchase with 90% stock and 10% cash. AdvancePCS, another pharmacy benefit manager, operates in the managed care market, while Caremark has historically catered to corporate and mail-order clients.

"It's a significant shift in strategy for Caremark in that they've always said they avoided the managed care market. Now they are getting into that market in a big way. We want to see how they plan to compete in that market," said S&P analyst Arthur Wong. While S&P will wait to see Caremark's strategies for integrating the two businesses, Wong notes that the deal seems like a good one. "They both have strengths in the area where the other is weak," said Wong. Howard McLure, cfo of Caremark, did not return calls by press time.