Serta Simmons BeddingSimmons Bedding filed for a pre-arranged bankruptcy in Houston, Texas, to reduce its debt to $300 million from $1.9 billion and resolve legal claims.
The bedding maker plans to swap old loans from new loans for equity by swapping old loans for new loans.
The company is operating normally, but warned that there are financial challenges as a result of the downturn in the mattress industry.
The U.S. bedding industry has been subject to a lot of disruption recently, including a decline in industry demand beginning in 2022 due to the slow growth caused by recent geopolitical and macroeconomic uncertainty, as well as reduced consumer spending as a result of higher interest rates, said CFO John Linker in a court document.
The industry faced significant inflation in raw materials costs, supply chain disruptions, and the adverse market effects of the COVID 19 pandemic prior to the demand headwinds. Since 2019, Serta Simmons has tried to correct size of its capital structure. A $200 million new money loan in 2020 was part of a refinancing agreement to weather the coronaviruses, but faced additional challenges, including two lawsuits for breach of loan agreements relating to that 2020 transaction.
Some lenders, including Angelo Gordon Co, Apollo Global Management and Gamut Capital Management, have sued to modify or revoke the 2020 restructuring.
Linker said that the company's ability to restructure its balance sheet and emerge from chapter 11 is inextricably linked to the resolution of the disputes raised in the 2020 transaction litigation.
In conjunction with its bankruptcy, Serta Simmons filed a lawsuit in the Texas bankruptcy court to resolve the lenders' claims and validate the 2020 restructuring.
The merger of two sister brands, Serta and Simmons, has resulted in the Doraville, Georgia-based company.
Serta Simmons BeddingSimmons Bedding employs over 3,600 employees and accounts for approximately 19% of the annual bedding sales in the U.S. through a variety of brands, including Simmons and the premium Simmons Beautyrest line, Serta, the most recently mattress-in-a-box brand Tuft Needle, acquired in 2018.
A company works out a deal with its creditors before filing for Chapter 11 by filing for a pre-arranged bankruptcy. In this case, the bedding maker went into bankruptcy with the support of approximately 81% of its first-lien, first-out priority term loan lenders and approximately 77% of its first-lien, second-out priority term loan lenders, along with a majority of its shareholders.
Serta Simmons also lined up $125 million in financing to keep operating.
It hopes to win court approval for its restructuring as soon as May 8.