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Bedtime for Serta Simmons as Firm Files for Bankruptcy

After months of speculation about its solvency, mattress maker Serta Simmons Bedding filed for Chapter 11 bankruptcy protection late Monday night.

The filing in the United States Bankruptcy Court for the Southern District of Texas represents Serta Simmons and 13 of its U.S. affiliates, including bed-in-a-box brand Tuft & Needle. The filing lists the company’s liabilities as between $1 billion and $10 billion, and its assets between $1 billion and $10 billion. The filing was voluntary and prearranged, with the goal of restructuring to reduce the company’s debt and “continue making critical investments in its business and brands.”

According to its filing, Serta Simmons—which is owned by private equity firm Advent International—owes more than $62 million to its top 10 unsecured creditors, with an estimated 25,000 to 50,000 total creditors.

Suppliers of springs and foam, as well as logistics companies, make up the bulk of Serta Simmons’ creditors. The company owes Leggett & Platt $17.4 million, Ergomotion $7.98 million, FXI $6.99 million, C.H. Robinson Worldwide $6.43 million, Sinomax USA $6.03 million, Elite Comfort Solutions $5.89 million, Future Foam $3.54 million, XPO Logistics $3.05 million, Carat USA $2.45 million and Louisville Bedding Co. $2.3 million. SSB owes 20 more creditors between $816,581 and $2.1 million each.

“With the support of key financial stakeholders, we are taking steps to strengthen our financial position,” Serta Simmons CEO Shelley Huff said in a statement. “After the conclusion of this process, we will have a stronger financial foundation to drive profitable growth and continue delivering the high-quality, innovative products that our company is known for.”

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The filing comes as no surprise to those in the bedding industry who’ve been watching Serta Simmons’ decline over the past few years.

“The speculation that they were going to go bankrupt has been ongoing for a year or two now,” said Steven Houk, owner, Boise Mattress, which operates two stores in Idaho and carries Serta Simmons products. “And now we get to see what happens, how they come out of it. But when it became evident that they were going to declare bankruptcy in January, we already started transitioning away from them.”

Serta Simmons recapitalized its first- and second-lien debt in 2020, estimating its debt would be reduced by about $400 million, with the transaction providing $200 million in new capital. In September 2022, Moody’s downgraded Serta Simmons’ corporate rating based on its debt and reduced cash on hand. And according to Bloomberg Law, the company skipped a debt interest payment as it attempted to strike a deal with lenders.

A hearing held Tuesdat in the U.S. Bankruptcy Court for the Southern District of Texas regarding the case got a bit heated as a suit brought on by a group of Serta Simmons’ lenders was revealed. The litigation relates to a $200 million rescue loan Serta Simmons received in 2020 amid the height of the pandemic. That funding came from a group of lenders including Invesco Ltd. and Eaton Vance, who stipulated that those firms would be the first in line for repayment should the company file for bankruptcy.

A group of lenders not included in that agreement, including Apollo and Angelo Gordon & Co., filed their lawsuit alleging that those first-in-line creditors had violated lending agreements by jumping ahead to be repaid.

In response, Serta Simmons filed its own lawsuit, asking judge David R. Jones to bless the original 2020 financing agreement that spurred litigation. Serta Simmons’ planned bankruptcy deal is backed by a majority of its lenders and shareholders. Under this plan, those holding the company’s first-lien-second-out debt, totaling more than $820 million, would receive most of Serta Simmons’ equity. Those lenders not among the first-in-line group would receive a single-digit share of Serta Simmons’ post bankruptcy stock. The bankruptcy plan also states the company will pay its continuing vendors if they agree to favorable terms.

Judge Jones scheduled a hearing on the new litigation for March 9.

Advent International acquired majority share ownership of SSB in 2012 for an estimated $3 billion. Houk said that move may have led to the company’s downfall, at least in part.

“The moment a venture capitalist buys your company, I think you’ve got a time stamp on your back of how long that company’s going to last,” he said. “They tend to suck everything good out of it and then go bankrupt.”

Houk said the mattress maker’s quality has lagged in recent years, too, a detriment in an incredibly competitive bedding market.

“They cost-engineered everything, where the product isn’t as good as it was 10 years ago,” he said. “That led to them getting rid of some really good people, the people who knew what was going on and how to make good product and reach retail. They’ve lost a little bit of their heart.”

Serta Simmons’ bankruptcy adds to growing turmoil in the bedding industry, with retailer Mattress Firm pulling its initial public offering earlier this month, after originally filing for the IPO in January 2022. Mattress giant Tempur Sealy opted not to pursue a bid for Mattress Firm, a move that didn’t shock many in the industry.

“Mattress Firm without Tempur Sealy doesn’t exist—they are the major supplier,” Houk said. “Why would you take on the debt responsibility of owning them when you can be their main supplier, and there’s no downside?”

Analysts at Jeffries released a report today on Serta Simmons’ bankruptcy impact on Tempur Sealy’s business, seeing it as a potential boon for the latter. The report noted that SSB sells to around 2,200 independent retailers in the U.S., in addition to the hospitality channel, covering hotels, casinos and resort properties.

“We see this development as a positive catalyst for Tempur Sealy (TPX), though the magnitude depends on the level of vendor skiddishness,” Jeffries analysts said. “As the process unfolds, we’ll be looking to uncover shifts in retail partner order patterns.”

While the completion of the Serta Simmons’ bankruptcy remains months away, retailers such as Houk hope it ultimately creates a more robust mattress marketplace that benefits a wider range of parties in the industry.

“Hopefully it creates healthy competition—that’s what we really need to see back in the industry right now,” Houk said. “And Tempur Sealy is kind of running away with it. They’re capturing market share five, 10 points at a time, not one or two. So somebody’s going to have to take Serta Simmons and be aggressive with it and make better products and quit cost engineering everything.”