A Chapter 11 bankruptcy may successfully allow a business to reorganize, survive, and move forward, even in a timely fashion. An example of which is the case of Houston-based Mattress Firm Inc. (“Mattress Firm”), which filed for relief under Chapter 11 less than three months ago on October 5, 2018. Just before the end of November, the company issued an announcement that it had completed its financial restructuring and emerged from Chapter 11. The late November announcement added that the process was completed in the expected time-frame of 45 to 60 days.
Problems generated both internally (e.g., bad management) and externally (e.g., market conditions) may threaten the existence of a business. Chapter 11 of the Bankruptcy Code (Title 11 of the U.S. Code) is an example of a mechanism enacted by Congress with a primary purpose of safeguarding the survival of businesses in the U.S. economy. Since 2014, Chapter 11 bankruptcy filings in the U.S. have averaged about 7,000 per year.
Mattress Firm Inc.’s original Chapter 11 petition listed both assets and liabilities between $1 billion and $10 billion. Mattress Firm has operated as a subsidiary of Steinhoff International Holdings NV since it was purchased by the Dutch-registered company in 2016 for $3.8 billion. At the time of the bankruptcy filing, Mattress Firm announced that it would close 700 of its 3,300 stores.
Following its successful reorganization, Mattress Firm’s November announcement indicated that the company presently has approximately 2,600 stores and $525 million of committed exit financing to support operations and future growth initiatives, including a $125 million revolving credit facility that will be undrawn at closing.
Starting in 2005, despite a rapid growth rate, the company started to accumulate substantial debt. It also had problems keeping up with the challenges caused by its significant rate of growth and the acquisition of more than 25 companies. Steinhoff struck a deal with creditors in July to postpone any debt claims for three years.
As the company looks to the future, the following statement by Steve Stagner, executive chairman, president, and CEO of Mattress Firm also acknowledges its past mistakes:
“With an optimized store footprint, stronger balance sheet and significant liquidity, we will be able to more efficiently focus on our strength — delivering the best beds at the best value to millions of customers across the country. We knew that our unprecedented growth had led to duplicative store locations in many of our markets. Now, having completed our operational and financial restructuring, we have the right store locations to not only better serve our customers, but also to fuel future growth. Going forward, we will be intensely focused on enhancing our product offering, driving disciplined and results-oriented operations and building an integrated and educational shopping experience.”
A Chapter 11 bankruptcy filing may provide businesses with a chance to restructure debt and reorganize operational structure. And it may even happen in an expeditious, efficient manner as illustrated by the fact that Mattress Firm filed its bankruptcy petition on October 5 and announced its successful reorganization only 47 days later on November 21.
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