Sleepmaster files Ch. 11
Top Serta licensee faces $300M debt
By Larry Thomas -- Furniture Today, November 25, 2001
LINDEN, N.J. — Sleepmaster, Serta's largest licensee, which has acquired six other Serta licensees since 1998, filed for Chapter 11 bankruptcy protection after it failed to make an $8 million interest payment to bondholders.
The bedding producer, whose financial problems have worsened this year as the economy has weakened, said it opted for the bankruptcy filing because the business isn't generating enough cash to make payments on its $300 million in long-term debt and revolving credit.
"This filing will enable us to achieve an orderly reorganization of the debt to serviceable levels," said Kyle Boyle, Sleepmaster's president and chief operating officer.
Boyle, who joined Sleepmaster in July after the retirement of longtime Sleepmaster president Charles Schweitzer, said the company intends to continue day-to-day operations as usual during the reorganization.
"Management will exert every effort to ensure that daily operations will continue without interruption, and all aspects of the business will go on as before the filing," Boyle said. "We have a responsibility to our customers, employees, vendors, creditors and shareholders to maximize assets and to create an appropriate corporate structure that will permit us to take greater advantage of opportunities in the future."
Documents filed with U.S. Bankruptcy Court in Wilmington, Del., listed assets of $430 million and total debt of $300 million. A list of unsecured trade creditors, which is likely to include suppliers of bedding components such as innerspring units, ticking, foam and fiber, wasn't immediately available. Sleepmaster, which is now Serta's largest licensee, operates 10 plants in the United States and one in Canada. It had sales of $173.2 million in the first half of this year — an increase of 44% over the first half of 2000.
Virtually all of the increase was due to its acquisition of Serta licensees based in Greensboro, N.C., and Vacaville, Calif., during 2000. The company wound up with a net loss of $7.15 million in the first half.
Three other licensees — those based in Cincinnati, Lancaster, Pa., and Toronto — were acquired in 1999, and the licensee in West Palm Beach, Fla., was acquired in 1998.
Ed Lilly, president of Serta Inc., said his office won't be directly involved in working out Sleepmaster's financial problems, but will continue to work with Sleepmaster customers on marketing and product-related issues.
He echoed Boyle's assertion that shipments to retailers should continue without interruption, and said he doesn't believe the bankruptcy filing will cause long-term damage to Serta.
"I strongly believe that the value of the Serta brand, the quality of our products, and our continuing outstanding service will help keep the Serta organization strong and competitive in the future," Lilly said.
The filing on Nov. 16 came one day after Sleepmaster missed an $8 million interest payment on its subordinated debt.
Boyle said the company "had exhausted all possibilities of obtaining additional financing."
As a result of the missed payment, Standard & Poor's lowered the company's corporate credit, bank loan and debt ratings to "D," a classification reserved for corporations in default on debt and/or in bankruptcy protection.
Boyle said Sleepmaster had secured a $30 million revolving credit agreement as part its debtor-in-possession financing. The financing package was awaiting bankruptcy court approval late last week.
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