New Simmons owner will carry more than $1 billion in debt

Combined Serta, Simmons sales for 2010 projected at $1.75-$1.76 billion

Larry Thomas -- Furniture Today, November 19, 2009

WILMINGTON, Del. — The soon-to-be parent company of bedding majors Simmons and Serta will have more than $1 billion in long-term debt once Simmons emerges from bankruptcy protection, according to documents filed in U.S. Bankruptcy Court here.

The documents insist that Simmons and Serta will be operated as separate entities. However, several key financial measures are combined because the new parent, an affiliate of Serta owners Ares Capital and the Ontario Teachers Pension Fund, is projecting significant cost savings from the new ownership structure.

The documents were filed as part of Simmons pre-packaged Chapter 11 reorganization in anticipation of Simmons being acquired by Serta's owners.

The financial projections, which assume the acquisition will be closed on March 15, 2010, show the two companies with approximately $1.048 billion in long-term debt on the closing date. Of that total, Serta's debt is projected at $599.6 million and Simmons is forecast at $448 million.

Simmons currently has about $1 billion of debt of its own, but more than half will be wiped out under the proposed bankruptcy reorganization.

The court documents show Serta had $624.4 million in debt as of Sept. 30, and project that figure will fall to $613.5 million by the end of this year.

According to the projections, debt for the new parent company would fall to $1.005 billion by the end of 2010. From there, it would fall steadily to $815.8 million by the end of 2013.

During that same period, the parent company's cash position would rise steadily from $182 million at the end of 2010 to $443.4 million by the end of 2013, the projections show.

The financial projections also include detailed income statements through 2013 for Simmons and Serta individually, as well as for the two companies combined. However, a footnote on one of the documents says the Simmons projections for 2010-13 aren't valid because they exclude changes in the company's capital structure following the restructuring.

(An earlier story on www.furnituretoday.com incorrectly assumed the Simmons income statements were valid.)

According to the footnote, Simmons sales in 2010 will be $950 million to $960 million. A separate document projects Serta Holding's 2010 sales at $797 million. That would put the combined companies' sales at $1.75 billion to $1.76 billion next year - an increase of 5.8% to 6.4% from 2009.

As a stand-alone company, Simmons sales are projected to be $903.1 million for this year, down 12.2% from 2008.

Serta Holdings projected sales for this year are $742.3 million, down 8.6% from 2008. Serta Holdings generates more than 80% of the sales of the Serta brand nationally.