Largest US mattress retailer goes bust
JOHANNESBURG: Steinhoff International Holdings NV’s Mattress Firm Inc, the largest US mattress retailer, has filed for voluntary bankruptcy protection, giving it breathing room to restructure and shore up its finances as its South African parent company fights for survival.
Steinhoff has been working on a deal to restructure the debt of some subsidiaries with its creditors after revealing multi-billion euro holes in its balance sheet.
Mattress Firm is looking to close up to 700 of its 3,000 brick-and-mortar locations. “An initial 200 stores will be closed in the next few days,’’ Steinhoff said.
The retailer, which will continue to serve customers as usual at stores and online during the process, has also received $775 million to fund ongoing operations and repay debt and costs associated with the restructuring.
“Mattress Firm has been facing significant operational challenges which management is addressing through its turnaround plan,” Steinhoff’s acting chief executive Danie van de Merwe said. “Considering the group’s current position, we believe the Mattress Firm recapitalisation is the best way to support and accelerate the turnaround plan.”
People familiar with the matter told Reuters last week that Mattress Firm, which was acquired by Steinhoff for $3.8 billion in 2016, was preparing to file for bankruptcy.
“It was expected. It gives them the opportunity to do some restructuring and finance some of their debt,” said Greg Katzenellenbogen, director at Sanlam Private Wealth. “Filing for the chapter 11 should give them some respite from creditors.”
Steinhoff’s creditors agreed in July to hold off on their debt claims for three years after the company’s market value fell by 90% and it was forced to sell assets to fund working capital.
“The Mattress Firm recapitalisation also represents a further positive step in the wider Steinhoff restructuring process,” van de Merwe said.
With its Chapter 11 filing, Mattress Firm joins a growing list of US brick-and-mortar retailers struggling financially in the face of competition from large e-commerce firms such as Amazon.com Inc.
More than 20 retailers have filed for US bankruptcy protection since the beginning of 2017. Toys “R” Us Inc eventually went into liquidation, while others including children’s retailer Gymboree Corp and Payless ShoeSource Inc reorganised.
Steinhoff said Mattress Firm had recently suffered from ineffective brand marketing and an insufficient presence in the high-end market segment.
The company expects to complete the restructuring of Mattress Firm in 45 to 60 days. Creditors who provided the bulk of the new financing will hold just under 50% of the equity in the restructured company, with Steinhoff retaining a majority stake.
“As a result of the store closures and other operational changes, Mattress Firm’s corporate earnings before interest, tax, depreciation and ammortisation (EBITDA) are expected to be $200 million by the company’s 2020 financial year,’’ Steinhoff said.
That compares with an EBITDA loss of $131 million in the 2018 financial year.
Steinhoff added that t he Mattress Firm filing was not expected to have any material effect on the trading of its other businesses.