Morningstar DBRS Finalizes Provisional Credit Rating of BB (low) With a Stable Trend on Sleep Country Canada Holdings Inc.'s Senior Unsecured Notes

DBRS Limited (Morningstar DBRS) finalized its provisional rating of BB (low) with a Stable trend and a Recovery Rating of RR5 on Sleep Country Canada Holdings Inc.'s (Sleep Country or the Company, rated BB, Stable) Senior Unsecured Notes (the Notes), which closed on November 28, 2024.

The $450 million 6.625% Notes, due November 28, 2032, are senior unsecured obligations, and will rank pari passu in right of payment with any existing and future senior unsecured indebtedness, and senior in right of payment to all existing and future subordinated indebtedness of the Issuer. The Notes are effectively subordinated to all senior secured indebtedness, including indebtedness under the Company's existing Senior Secured Credit Agreement. The Notes will be fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of Sleep Country's existing subsidiaries that are guarantors under the existing Senior Secured Credit Agreement.

The net proceeds from the Notes are expected to be used for the repayment of existing indebtedness under the Senior Secured Credit Agreement and for fees and expenses related to the offering.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of BRA Factors
In the analysis of Sleep Country Canada Holdings Inc., the relative weighting of the BRA factors was approximately equal.

B) Weighting of FRA Factors
In the analysis of Sleep Country Canada Holdings Inc., the relative weighting of the FRA factors was approximately equal.

C) Weighting of the BRA and the FRA
In the analysis of Sleep Country Canada Holdings Inc., the BRA and the FRA carry approximately equal weight.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in the Merchandising Industry (August 14, 2024)
https://dbrs.morningstar.com/research/437891

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024) - https://dbrs.morningstar.com/research/431186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Global Corporate Criteria (April 15, 2024)
https://dbrs.morningstar.com/research/431186

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was not initiated at the request of the rated entity. The credit rating was initiated at the request of a third party.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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