Steinhoff’s Mattress Firm Goes Bankrupt, Shuts Some Stores

(Bloomberg) -- Mattress Firm Inc., the troubled bed retailer of scandal-plagued Steinhoff International Holdings NV, filed for bankruptcy Friday with plans to shutter up to 700 stores.

A plan to speed through a U.S. Chapter 11 bankruptcy within 45 to 60 days was disclosed along with the court filing in Wilmington, Delaware. By shaving off some of its more than $3.2 billion in debt, and using bankruptcy law’s power to break unattractive leases, Mattress Firm aims to stay in business by giving lenders a partial stake in the reorganized firm.

Mattress Firm will continue to operate while paring back its chain of more than 3,000 stores across 49 states, according to a statement. Well-known brand names owned by Mattress Firm such as Sleepy’s and are included in the filing, with Simmons Manufacturing Co. and Serta Mattress Co. among the largest unsecured creditors.

“Leading up to the holiday shopping season, we will exit up to 700 stores in certain markets where we have too many locations in close proximity to each other,” Steve Stagner, chief executive officer of Mattress Firm, said in the statement. An initial group of 200 stores will be shut in the next few days, the company said.

Prepackaged Deal

The bankruptcy includes a prepackaged restructuring agreement, meaning it already has the approval of key stakeholders, but it will still need court approval. The chain said deliveries to customers won’t be affected and it will continue to honor warranties, promotional programs, returns and exchanges.

Mattress Firm’s problems have intensified the troubles of parent Steinhoff, which is restructuring more than 9 billion euros of debt and dealing with an investigation into faulty accounting. The downward spiral began in December, when Steinhoff said it uncovered irregularities and that Markus Jooste had left the CEO post. The scandal wiped out billions of dollars of market value, and Steinhoff has been probed by regulators, law enforcement officials and tax officials in its home country of South Africa and abroad.

To stave off collapse, Steinhoff has had to sell some assets and persuade bondholders and banks to agree to new terms. Suffering losses, some investors have launched class-action lawsuits and the company’s former chairman, billionaire Christo Wiese, is suing Steinhoff for 59 billion rand ($4 billion).

Steinhoff will get nothing for its unsecured debt in the company, unlike other unsecured creditors, court filings show. But an $80 million secured loan Steinhoff made in March would be paid in full, according to an outline of how creditors will be repaid.

Lenders providing a $400 million exit term loan will be given payment-in-kind debt and equity in a new, reorganized company, while the overall equity will continue to be held by a non-bankrupt affiliate of Mattress Firm.

The Houston-based company is asking the judge to approve $250 million of financing to keep paying its bills during the process, and said $525 million in senior secured credit has been committed to fund its turnaround.

Rapid Expansion

Steinhoff bought Mattress Firm for $3.8 billion two years ago, but the chain expanded too aggressively, suffered from ineffective marketing and has been embroiled in a dispute with suppliers, Steinhoff said.

The company has acknowledged it over-saturated some of its markets, a problem made worse in 2016 when Mattress Firm bought Sleepy’s and created the biggest U.S. mattress chain. That left the combined company with some outlets across the street from each other.

Mattress Firm has blamed some of its expense problems on inflated rents. In a 2017 lawsuit, it claimed some of its own employees who handled real estate, along with outside developers, conspired to push it into more and more expensive locations, signing leases at above-market prices. The company characterized it as “a nationwide bribery, kickback, and fraud scheme,” according to court papers.

The defendants, who denied wrongdoing, replied in court filings by questioning whether the company was trying to negotiate reduced lease rates in the face of its own internal issues.

The chain also parted ways with its largest supplier, Tempur Sealy, which has now sued Mattress Firm for allegedly selling confusingly similar products under the Therapedic brand name.

According to a presentation for lenders, Mattress Firm’s revenue as of September declined to 1.9 billion euros ($2.2 billion) from 2.2 billion euros in September 2017, but the like-for-like sales rose 2.6 percent. The company targets e-commerce improvement and opening stores in Los Angeles and Detroit as part of its turnaround strategy.

The case is Mattress Firm Inc., 18-12241, U.S. Bankruptcy Court, District of Delaware.

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