DURBAN – Steinhoff has announced that its Mattress Firm subsidiary would close more than 25 percent of its units in the US as part of a major restructuring plan aimed at offloading some businesses and re-base its books.
Steinhoff said Mattress Firm filed for bankruptcy protection on Friday and was selling nearly 700 stores of its estimated 3 200 stores in Delaware as part of a pre-packed strategy that would bring in new financing to the bed division.
The petition for bankruptcy listed more than $1 billion (R14.75bn) in both debt and assets, as well as units of well-known brand names such as Sleepy’s and 1800mattress.com in a prepacked reorganisation that would be undertaken in an efficient and orderly way.
“The Mattress Firm filing supports actions to strengthen its balance sheet and optimise its store footprint and is a further step in the ongoing debt restructuring of the Steinhoff group and is designed to accelerate the turnaround of the Mattress Firm business,” the group said.
Steinhoff acquired Mattress Firm for $3.8bn in 2016, and analysts believe the group paid a massive premium for it. The company dominates the US with a 33.6 percent of the market share.
Steinhoff plunged into a crisis in December after it admitted to accounting irregularities, falling 90 percent on the JSE and wiping more than R200bn off its market cap. The scandal claimed the scalp of former chief executive Markus Jooste, who resigned immediately. The group is yet to release its 2017 financial statements.
On Friday Steinhoff said an initial group of approximately 200 stores would be closed in the next few days and a decision on the next batch would be made in the next few weeks.
The group said Mattress Firm received a commitment for approximately $250 million in debtor-in-possession financing in conjunction with the pre-packaged process.
It said the transaction, which was still subject to court approval, would repay parts of Mattress Firm's asset-based lending (ABL) facility and support its ongoing operations.
Steinhoff said the financing would have a three-month term, and Mattress Firm would complete the restructuring process within two months.
It said Mattress Firm also secured a commitment for a four-year term loan of $400m of exit financing and an ABL facility of $125m underwritten by a number of Steinhoff Europe creditors.
“The proceeds will be utilised to repay the debtor-in-possession financing, repay Mattress Firm’s ABL facility, repay the outstanding approximately $84m intercompany loan from the company to Mattress Firm, pay costs associated with the pre-packaged plan, transaction fees and otherwise to provide working capital,” the group said.
Steinhoff’s acting chief executive, Danie van de Merwe, said Mattress Firm had faced significant operational challenges attended to through the turnaround plan.
“Considering the group’s current position, we believe the Mattress Firm recapitalisation is the best way to support and accelerate the turnaround plan so as to ensure a future for Mattress Firm and its employees and unlock value for shareholders over time. The Mattress Firm recapitalisation also represents a further positive step in the wider Steinhoff restructuring process,” Van de Merwe said.
Steinhoff said the bankruptcy filing would not have a directly impact on other businesses and material effect on its operations. Ron Klipin, a senior analyst at Cratos Capital, said Mattress Firm had taken the bankruptcy route to keep the business alive and get breathing space from its creditors.
“Firstly, Steinhoff paid a massive premium when it acquired Mattress Firm, as it sought geographical expansion into the US market which is a highly competitive market,“ he said.
“The recapitalisation of Mattress Firm will allow it to pay existing loans to its creditors or suppliers after securing a four-year term loan of $400m of exit financing and an ABL facility of $125m underwritten by a number of Steinhoff Europe creditors.”
Klipin said the restructuring would help Mattress Firm to reduce costs, provide working capital and introduce an equity partner.
“It is a good proposition all round for the group and it will take the pressure off at the top for Steinhoff and allow it to have some breathing space going forward,” he said.