Serta Simmons Bedding filed for bankruptcy with plans to trim its debt load and settle a creditor fight stemming from an earlier, out-of-court restructuring.
(Bloomberg) — Serta Simmons Bedding filed for bankruptcy with plans to trim its debt load and settle a creditor fight stemming from an earlier, out-of-court restructuring.
The Atlanta-based mattress maker filed in the Southern District of Texas on Monday. The Chapter 11 filing allows Serta to continue operating while implementing a deal, backed by a majority of lenders and shareholders, to cut its debt to $300 million from $1.9 billion, the company said in a statement.
The creditor group has agreed to provide $125 million in the form of an asset-based loan to help the company fund itself in bankruptcy. The firm has also secured a commitment of $125 million in the same form once its exits bankruptcy.
Alongside its Chapter 11 petition, Serta filed a lawsuit asking its bankruptcy judge to bless a previous rescue financing that drew the ire of some creditors. The 2020 deal added $200 million of fresh capital while allowing some lenders to jump to the front of the repayment line, while other lenders were pushed back — a process known as priming.
A group of funds including Angelo Gordon & Co. and Apollo Global Management earlier sued Serta and rival lenders in the hopes of invalidating the transaction. Settling the fight over the deal is “critical” to the mattress maker’s restructuring, the company said in its lawsuit.
Plan Details
Serta’s bankruptcy plan calls for repaying high-ranking lenders with new debt and stock in the restructured company, court papers show. Holders of more than $830 million of so-called first-lien-second-out debt are slated to get most of the company’s equity. Loans pushed back in the repayment line in 2020 — more than $860 million of debt — would get a single-digit share of the stock in post-bankruptcy Serta.
The plan also calls for paying the company’s continuing vendors in full, as long as they agree to favorable trade terms. Nearly all of its top unsecured creditors are suppliers, with the top one listed owed more than $17 million, the filings show. The plan requires bankruptcy court approval and could change.
The firm listed assets of $1 billion to $10 billion and liabilities in the same range in its petition. The company’s debt, which stems from a roughly $3 billion leveraged buyout by Advent International in 2012, has hobbled the retailer. Confidential talks over a restructuring plan started late last year, Bloomberg earlier reported.
Serta is working with advisers Weil, Gotshal & Manges, Evercore Group and FTI Consulting, according to the statement. Gibson Dunn & Crutcher and Centerview Partners are advising creditors, while Ropes and Gray are working with Advent.
Joining Forces
The mattress giant’s start can be traced back to the 1870s along the shores of Lake Michigan. There, Simmons — which ultimately joined forces with Serta in 2010 to establish the firm that exists today — first started producing coil spring mattresses, John Linker, the company’s chief financial officer, said in court papers.
The firm grew over the next century until it filed for bankruptcy during the fall-out of the financial crisis. Soon after, the firm merged with competitor Serta — which had established itself through an ad campaign of counting sheep in the early 2000s — to establish the new company, Serta Simmons.
Today, the firm is one of the largest mattress companies in the US, accounting for 19% of annual bedding sales, according to court papers. It operates 21 manufacturing facilities across the US and Canada and sells mattresses at 2,200 independent retailers.
Outside of its heavy debt load, Serta’s most recent woes emerged from the pandemic-era litigation led by creditors. As a result, the firm’s fate is closely linked to the outcome of that fight.
“The company’s ability to restructure its balance sheet and emerge from chapter 11 is inextricably tied to the resolution of the disputes raised” in the 2020 lawsuit, Linker said.
The case is Serta Simmons Bedding LLC, 23-90020, US Bankruptcy Court for the Southern District of Texas.
–With assistance from Finbarr Flynn, Bruce Douglas and Jeremy Hill.
(Updates details on restructuring plans beginning in first paragraph.)
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