Struggling mattress retailer Hollander Sleep Products asked a New York bankruptcy court Tuesday for permission to pivot from a reorganization plan centered on a debt-for-equity swap to a $102 million asset sale, saying it is in the best interest of the company's creditors.
Hollander asked the court to approve a revised Chapter 11 plan incorporating both the sale of the company to an entity called Bedding Acquisition LLC and a settlement negotiated earlier this summer that will provide $1.2 million to the company's unsecured creditors.
"The plan represents the final step toward consummation of a value-maximizing sale transaction for the benefit of all stakeholders," it said.
Hollander Sleep Products LLC filed for bankruptcy in May, saying rising material, labor and shipping costs and the costs of integrating a competitor it acquired last year had left it in a severe liquidity squeeze and that it had a plan to erase $166.5 million of its current $233 million in debt with a debt-for-equity swap.
In the motion asking for approval of the new plan, Hollander said negotiations since the filing produced a global creditor settlement that was approved by the court on Aug. 15. Under the terms of the settlement, Hollander and the plan sponsors will put up $1.25 million to be paid to the company's unsecured creditors, it said.
While the settlement negotiations were happening, the company said it was also soliciting bids for its assets. Ten initial expressions of interest were narrowed down to the one acceptable bid from Bedding Acquisition, it said.
A revised plan with a "toggle" feature to allow switching to an asset sale was put to a vote by the impaired creditors and received approval from the holders of all of the company's $173.9 million in term loan debt and the holders of more than 95% of its $38.5 million in unsecured debt, it said.
Hollander noted that additional changes to the plan include that the providers of the company's $90 million in debtor-in-possession funding have agreed to accept less than full repayment and to cede repayment priority to Hollander's prepetition term loan creditors, as well as the establishment of a $1 million wind-down reserve fund.
Counsel for Hollander and the unsecured creditors did not immediately respond to requests for comment Tuesday.
Hollander is represented by Joshua A. Sussberg, Joseph M. Graham and Christopher T. Greco of Kirkland & Ellis LLP.
The unsecured creditors are represented by Robert J. Feinstein, Bradford J. Sandler and Jeffrey N. Pomerantz of Pachulski Stang Ziehl & Jones LLP.
Counsel information for Bedding Acquisition was not immediately available Tuesday.
The case is In re: Hollander Sleep Products LLC et al., case number 1:19-bk-11608, in the U.S. Bankruptcy Court for the Southern District of New York.