Thousands of Idaho residents sleep soundly at night on mattresses and beds made by Serta Simmons. The Georgia-based Simmons Bedding Company opened its doors in 1870 and merged with Serta in 2010, but it has faced a confluence of financial challenges in recent years. On Jan. 24, media outlets reported that Serta Simmons has filed for Chapter 11 bankruptcy. According to the reports, Serta Simmons plans to reduce its debt from $1.9 billion to just $300 million during the prearranged bankruptcy process, which analysts expect to be completed by early May.
Industry-wide problems
Serta Simmons executives maintain that the company’s business fundamentals are still strong, and they say its current financial struggles are the result in an economic downturn that is affecting the entire mattress and bedding sector. Margins in the industry are shrinking due to increases in manufacturing and raw materials costs and supply chain issues, and consumers are putting off major purchases like mattresses because of high inflation and rising prices. Serta Simmons has announced that its manufacturing and distribution operations will not be impacted by the business bankruptcy.
Loans and lawsuits
The bankruptcy appears to have been prompted by litigation connected to a $200 million loan the company took out in 2020. Several lenders have filed lawsuits that aim to either modify or cancel the refinancing package, and Serta Simmons has filed a lawsuit of its own in response. Other lenders are supporting the bankruptcy. According to media reports, 81% of first-lien, first-out creditors and 77% of first-lien, second-out creditors remain behind the company.
Prearranged bankruptcies
Prearranged bankruptcies like this one are filed after agreements have been reached with creditors, and they suggest that fundamentally sound companies need time to tackle one or more pressing issues. When Serta Simmons emerges from bankruptcy, it should have a lower debt load and more manageable expenses. The company could also be free of the legal issues that have beset it in recent years.