Sleep Number Corporation on June 12 filed for Chapter 11 in bankruptcy court in Manhattan, saying it had entered into an agreement to combine with Sleep Country Canada “to create a leading North American mattress and bedding company.”
The company said it would use the Chapter 11 proceeding to pursue a Section 363 sale of the company, with Sleep Country Canada serving as the stalking horse bidder in a court-supervised process, and it noted that the proposed transaction is subject to court approval, higher and better offers, and other closing conditions.
In its news release, the company’s president and CEO, Linda Findley, explained, “While we have made meaningful progress advancing our turnaround efforts and strengthening our operations, our capital structure remains unsustainable.”
Among other things, Sleep Country Canada operates a network of 300 stores across Canada.
According to bankruptcy court filings, the stalking horse transaction provides for a purchase price of $415 million in cash, subject to certain adjustments and the assumption of certain liabilities. The deal carries a 3% break-up fee along with an expense reimbursement cap of $4 million.
The company’s proposed bidding procedures provide for a bid deadline of July 8, an auction date of July 13, a hearing to approve the sale on July 15, and a closing date of July 31. The company said the expedited sales timeline was justified by the fact that the company has already conducted a prepetition “robust, 14-week marketing process” during which it contacted 53 potential strategic and financial purchasers. Of those, 19 executed non-disclosure agreements and five submitted preliminary proposals, the filing said.
The company also noted that it was seeking a quick completion of the Chapter 11 process, saying, “It is imperative that the debtors not linger in Chapter 11” in order to avoid administrative expenses and limit the risk of a loss of employee, customer, and supplier confidence.
The company said it expects to secure up to $260 million of debtor-in-possession financing (DIP) to support the business during the court-supervised process, comprising up to $65 million in new financing and the roll-up of $195 million of prepetition obligations converted on a 3:1 basis.
Interest under the DIP is S+800. US Bank is the agent.
The company said it had received three competing DIP proposals for priming facilities (including one unsolicited offer), but existing lenders would not consent to being primed.
The company’s Chapter 11 petition listed total assets of $642.3 million and total debt of roughly $1.28 billion.
According to the first-day declaration filed in the case, the company has about $672.5 million of funded debt, comprising about $475 million outstanding under a revolver, $177.5 million outstanding under a term loan entered into in 2021, and an additional $20 million term loan entered into in 2026.
Sleep Number further said it had “already been undertaking a review of its store footprint and, in connection with this process, the company will continue this work with the intention of maintaining as many retail locations as possible based on profitability. A&G Real Estate Partners is assisting the company with this effort,” adding that it filed a motion with the bankruptcy court to reject leases in 44 non-operational locations.
Davis Polk & Wardwell is the company’s legal advisor, Guggenheim Securities its investment banker, AP Services (an affiliate of AlixPartners) its interim management, and Joele Frank, Wilkinson Brimmer Katcher its strategic communications advisor.
Sleep Country Canada is advised by Goodwin Procter as legal advisor and PwC as financial advisor.
The company provides sleep solutions and services.
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