Serta Simmons files Chapter 11 with plan to cut debt by $1.6 billion

By Sarah Lizee

Olympia, Wash., Jan. 24 – Serta Simmons Bedding, LLC and most of its U.S. corporate entities filed bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas to implement a prearranged Chapter 11 plan of reorganization, according to a press release issued Monday night.

The company said in court documents that in addition to its looming maturities and unsustainable capital structure, the debtors face financial challenges as a result of the downturn of the mattress industry generally.

Serta Simmons said it entered into a restructuring support agreement with key financial stakeholders that will significantly reduce the company’s debt and enable the company to continue making critical investments in its business and brands.

The restructuring support agreement has been agreed to by about 81% of the company’s first-lien, first-out priority term loan lenders and about 77% of its first-lien, second-out priority term loan lenders, as well as a majority of its existing equity holders.

The restructuring will reduce the company’s funded debt to about $300 million from about $1.9 billion and enable the company to continue making critical investments in its business and brands.

The company said it also plans to resolve pending disputes and ongoing litigation with some of its significant creditors.

DIP-to-exit financing

The company has also obtained a debtor-in-possession financing in the form of a $125 million ABL facility. On an interim basis, the DIP facility will provide for $35 million in revolving loans, plus the total amount of letter of credit.

The DIP facility is being provided by Eclipse Business Capital LLC, a lender outside of the debtors’ existing capital structure.

Interest on the DIP facility is SOFR plus 450 basis points. There is a 0.5% commitment fee and a $2.25 million closing fee. There is also a $1.56 million exit fee, provided that the fee will be reduced to $1.06 million if the fee becomes due and payable on the same day that any exit financing is provided or arranged by Eclipse on the effective date.

The DIP facility is set to mature in six months from closing, or earlier in some cases, including if a plan or sale is consummated before then.

There are some case milestones under the DIP facility, including confirming a plan no later than 30 days before the maturity date, and the plan going into effect by the maturity date.

Serta Simmons is also seeking court approval to use cash collateral that its prepetition secured creditors have an interest in.

At emergence, the DIP facility will convert to or be replaced by a $125 million exit asset-based lending facility via Eclipse.

Upon court approval, the new financing, along with about $170 million of cash on hand as of the filing date, and cash generated from the company’s ongoing operations, will be used to support the business during the court-supervised process.

Creditor treatment

Under the plan, each holder of an FLFO claim under the prepetition term loan facility has agreed to exchange its claims for its pro rata share of $195 million of a new $300 million term loan facility.

Each holder of an FLSO claim under the prepetition term loan facility has agreed to exchange its claims for its pro rata share of 100% of the equity in the reorganized debtors (less any equity distributed to holders of class 5 non-PTL claims and subject to dilution by equity distributed under a management incentive plan), and $105 million in principal amount of takeback debt in the form of new term loans.

Each holder of non-PTL term loan claims will receive its pro rata share of 4% of new common interests issued on the effective date, subject to dilution from the management incentive plan, if this class votes to accept the plan. If the class votes to reject the plan, holders will receive their pro rata share of 1% of the new common interests, subject to dilution.

Holders of ongoing general unsecured claims will receive, in exchange for executing a trade agreement providing for the continuation of goods or services on the same or better terms as existed prior to the petition date, no more than four cash installments, which payments will result in full payment of the allowed amount of the claims on no better terms than payment in the ordinary course of business.

Holders of other general unsecured claims will receive, in full satisfaction of their claims, their pro rata share of a recovery pool.

Other secured claims and priority non-tax claims are unimpaired.

Intercompany claims will be adjusted, reinstated or discharged,

Intercompany interests will be unaffected and continue in place after the effective date, only for the administrative convenience of maintaining the existing corporate structure of the debtors.

A settlement will be approved among the debtors, the consenting creditors, and the consenting equity holders resulting in the contribution of non-debtor entity Dawn Holdings, Inc. into the restructuring.

Other details

Serta Simmons has filed a number of customary first-day motions seeking court approval to support its operations during the court-supervised process, including the continued payment of employee wages and benefits without interruption, as well as the continued support of its customer programs and consumer product warranties.

The company is also seeking court permission to pay suppliers, either during the Chapter 11 process or upon emergence from it, for goods and services that were provided prior to the bankruptcy filing date.

The company expects business to continue as usual throughout the process and trade vendors and suppliers will be paid in full under normal terms for goods and services provided on or after the filing date.

In its petition, the company listed $1 billion to $10 billion in assets and $1 billion to $10 billion in liabilities.

Its largest unsecured creditors are Leggett & Platt, based in Nashville, with a $17.4 million trade vendor claim, Ergomotion, based in Santa Barbara, Calif., with a $7.98 million trade vendor claim, FXI, based in Kent, Wash., with a $6.99 million trade vendor claim, C.H. Robinson Worldwide Inc., based in Eden Prairie, Minn., with a $6.43 million trade vendor claim, Sinomax USA, Inc., based in Houston with a $6.03 million trade vendor claim, Elite Comfort Solution Inc., based in Conover, N.C., with a $3.54 million trade vendor claim, and XPO Logistics, based in High Point, N.C., with a $3.05 million trade vendor claim.

For the company, Weil, Gotshal & Manges LLP is serving as legal counsel, Evercore Group LLC is serving as investment banker, and FTI Consulting, Inc. is serving as financial and restructuring adviser.

Gibson Dunn & Crutcher, LLP is legal counsel and Centerview Partners LLC is investment banker to the consenting creditors.

Ropes and Gray LLP is serving as legal counsel to Advent International Corp.

The filings do not include the company’s Canadian or Puerto Rican operations.

Serta, an Advent International portfolio company, is an Atlanta-based manufacturer and distributor of mattresses. It filed bankruptcy under Chapter 11 case number 23-90020.

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