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Coronavirus crisis crippling debt-heavy Serta Simmons

The nation’s biggest mattress maker is in danger of becoming a coronavirus casualty this summer — and it’s the company’s private-equity owners that have made it vulnerable.

Serta Simmons — a 150-year-old manufacturer that controls nearly 40 percent of the US mattress market — is facing a liquidity crunch as its retailers struggle with state-ordered lockdowns that have shuttered stores nationwide, sources told The Post.

In turn, at least two so-called vulture firms are now circling the company, betting that it could run out of cash as soon as July and get forced into a fire sale to creditors, sources close to the situation said. At least one such fund is buying up portions of the company’s senior unsecured debt, which was recently trading at a mere 42 cents on the dollar, indicating that Wall Street believes a default is likely.

“I am hearing they are going to need to restructure in the next quarter or two,” an industry executive said.

Insiders say Serta Simmons got into the mess partly because the company — like the recently bankrupted Neiman Marcus and J. Crew chains — has been saddled with debt by a private-equity firm that left it little wiggle room to navigate a crisis.

Advent International — a Boston-based buyout firm whose other consumer investments have included Lululemon and the Five Below tween chain — led a $3 billion leveraged buyout in 2012 that has left the company with $2.3 billion in debt. Part of the load came from a $670 million, debt-fueled dividend that Advent took for itself in 2016.

In March before the coronavirus hit the US, the company — which in addition to Serta and Simmons owns the Beautyrest and Tuft & Needle brands — had $100 million on its balance sheet, and was generating more than $200 million in Ebitda, or earnings before interest, taxes depreciation and amortization, according to Moody’s Investor Service.

That, according to Moody’s, amounted to a “very highly leveraged” capital structure that was “unsustainable.”

That’s despite Advent’s moves to aggressively slash costs more than a year ago.

Early last year, Serta Simmons Chairman David Swift, a longtime Advent executive, overruled the company’s Chief Executive Michael Traub and hired restructuring firm Alvarez & Marsal to find $40 million in cost savings, an industry executive said. The company fired 160 employees, including much of its senior and higher-paid staff, according to the source.

About a month later, Swift replaced Traub as CEO, but things just got rockier. Mattress Firm, the biggest mattress retailer in the US, ended its exclusive relationship with Serta Simmons and started selling Tempur Sealy beds, two industry executives said. Serta Simmons also lost a distribution deal with Big Lots, a major closeout chain.

“Together, that’s north of $300 million lost on an annualized basis,” one of the executives said, or about 15 percent of its total $2.3 billion in revenue. That’s also down from $2.8 billion in revenue in 2017, according to Moody’s.

With the arrival of the coronavirus, mattress sales have gotten slammed further. Tempur Sealy, a smaller, publicly traded rival that controls more than 25 percent of the market, saw its sales plunge more than 50 percent in April. Tempur Sealy said Thursday it expects sales for the current quarter to be down 30 percent and that it will be “at least” breakeven for the quarter on an Ebitda basis.

Meanwhile, Serta Simmons’ massive debt load has crimped its ability to offer mattresses at low prices, analysts say. The company “likely underperformed” versus Tempur Sealy and other brands during Memorial Day weekend sales events and is “struggling versus its peers,” Raymond James said in a Wednesday note.

“Serta Simmons (private equity owned) is highly levered and recently elected not to renew its Las Vegas showroom lease, which we believe will put it at a further disadvantage with the smaller mom-and-pop customers,” the brokerage told clients in a Wednesday research note.

Advent International declined to comment. Reps for Serta Simmons didn’t respond to requests for comment.

Source: NYPost

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