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Hollander Hopes to Put $166 Million Debt Load to Bed in Ch. 11

Pillow and mattress pad maker Hollander Sleep Products LLC has filed for Chapter 11 in a New York bankruptcy court with a $166.5 million debt-for-equity swap plan it says will free it from "severe liquidity restraints."

In an announcement that accompanied the Sunday filing, Florida-based Hollander said all its term lenders are on board with the plan, which will reduce its debt by close to two-thirds and provide for $30 million in new money exit financing and $118 million in debtor-in-possession financing from its existing lenders.

"Upon emergence, we will have a stronger balance sheet and the financial flexibility needed to compete in today's dynamic business environment now and over the long term," CEO Marc Pfefferle said in the announcement.

In the bankruptcy declaration, Pfefferle said Hollander was founded in 1952 and employs more than 2,300 people in 13 factories in the U.S. and Canada. He said the company is currently the largest bed pillow maker in the world, making 75 million pillows a year, and that it has a significant share of the mattress pad, comforter and cushion market.

He said "substantial" price increases in fiber, down and feathers and rising labor and shipping costs have reduced the company's already-thin profit margins and that its 2017 acquisition of bedding maker Pacific Coast Feather Co., while a net positive, has forced it to spend capital integrating PCF's operations with its own.

"And with $233 million of outstanding indebtedness and limited access to credit, the company is facing severe liquidity constraints," he said. "In fact, the debtors have only $523,000 in cash on hand."

The current debt includes a $125 million senior secured credit facility and a $190 million secured term loan facility, he said.

He said as a result, the company has reached an agreement with its secured lenders and Sentinel Capital Partners LLC, a lender and the majority shareholder, for the debt-for-equity restructuring.

He said Wells Fargo Bank, its asset-based secured lender, had agreed to provide a $90 million DIP facility that will convert to a $58 million term loan upon exit from Chapter 11. That will provide $30 million in additional liquidity that will go into a "full range" of business and infrastructure improvements and new manufacturing equipment, the announcement said.

The other lenders are providing an additional $28 million DIP term loan, which together with the Wells Fargo financing will be enough to continue operations through the Chapter 11 case, Pfefferle said in the declaration.

He said the company is marketing its assets as well, and that the plan allows for a changeover to a sale if the company and the lenders find that would bring a better return, he said. He said they hope to put the plan to a vote by August 19 and hold the confirmation hearing by Aug. 26.

Pfefferle said the company’s Canadian subsidiary will also begin proceedings under the Companies' Creditors Arrangement Act.

The company said it has retained Carl Marks Advisory Group LLC as financial adviser and Houlihan Lokey Capital as its investment banker.

Hollander is represented by Joshua A. Sussberg, Joseph M. Graham and Christopher T. Greco of Kirkland & Ellis LLP.

The case is in re: Hollander Sleep Products LLC et al., case number 19-11608, in the United States Bankruptcy Court for the Southern District of New York.