October 5, 2018 / 12:52 PM / 10 days ago

Steinhoff's Mattress Firm files for bankruptcy protection, closes stores

JOHANNESBURG (Reuters) - Steinhoff’s (SNHJ.J) Mattress Firm Inc, the largest U.S. mattress retailer, has filed for voluntary bankruptcy protection, giving it breathing room to restructure and shore up its finances as its South African parent company fights for survival.

FILE PHOTO: A Mattress Firm store, a brand owned by Steinhoff, is shown in Encinitas, California, U.S., January 25, 2018. REUTERS/Mike Blake/File Photo

Steinhoff has been working on a deal to restructure the debt of some subsidiaries with its creditors after revealing multi-billion euro holes in its balance sheet.

Mattress Firm is looking to close up to 700 of its 3,000 brick-and-mortar locations. An initial 200 stores will be closed in the next few days, Steinhoff said.

The retailer, which said it will continue to serve customers as usual at stores and online during the process, has also received $775 million to fund ongoing operations and repay debt and costs associated with the restructuring.

“Mattress Firm has been facing significant operational challenges which management is addressing through its turnaround plan,” Steinhoff’s acting chief executive Danie van de Merwe said.

“Considering the group’s current position, we believe the Mattress Firm recapitalization is the best way to support and accelerate the turnaround plan.”

People familiar with the matter told Reuters on Tuesday that Mattress Firm, which was acquired by Steinhoff for $3.8 billion in 2016, was preparing to file for bankruptcy as soon as this week.

Shares in Steinhoff, which owns more than 40 retail brands including Conforama and Poundland, were up 6.4 percent to 2.48 rand by 1530 GMT.

“It was expected. It gives them the opportunity to do some restructuring and finance some of their debt,” said Greg Katzenellenbogen, director at Sanlam Private Wealth. “Filing for the chapter 11 should give them some respite from creditors.”

Steinhoff’s creditors agreed in July to hold off on their debt claims for three years after the company’s market value fell by 90 percent and it was forced to sell assets to fund working capital.

“The Mattress Firm recapitalization also represents a further positive step in the wider Steinhoff restructuring process,” van de Merwe said.

STRUGGLING U.S. RETAILERS

With its Chapter 11 filing, Mattress Firm joins a growing list of U.S. brick-and-mortar retailers struggling financially in the face of competition from large e-commerce firms such as Amazon (AMZN.O).

More than 20 retailers have filed for U.S. bankruptcy protection since the beginning of 2017. Toys “R” Us Inc eventually went into liquidation, while others including children’s retailer Gymboree Corp and Payless ShoeSource Inc reorganized.

Steinhoff said Mattress Firm had recently suffered from ineffective brand marketing and an insufficient presence in the high-end market segment.

The company expects to complete the restructuring of Mattress Firm in 45 to 60 days. Creditors who provided the bulk of the new financing will hold just under 50 percent of the equity in the restructured company, with Steinhoff retaining a majority stake.

As a result of the store closures and other operational changes, Mattress Firm’s corporate earnings before interest, tax, depreciation and amortization (EBITDA) are expected to be $200 million by the company’s 2020 financial year, Steinhoff said.

That compares with an EBITDA loss of $131 million in the 2018 financial year.

Steinhoff added that the Mattress Firm filing is not expected to have any material effect on the trading of its other businesses.

Additional reporting by Nqobile Dludla and Patricia Arou, editing by Louise Heavens and Kirsten Donovan

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