Mattress Maker's Bankruptcy Sale
Sleep Number Files Chapter 11, Pursues Sale to Sleep Country Amid Weak Demand
Anonymous
Key Points
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In court filings, Sleep Number listed debts of about $1.3 billion, and CEO Linda Findley said the Sleep Country Canada agreement and the “court-supervised sale process” would “position us to expand our business … through future international expansion.”
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The debtor-in-possession (DIP) financing is structured as $65 million in new-money term loans plus a $195 million “roll-up,” priced at SOFR plus 8.00% (or base plus 7.00%) and maturing in three months; the Section 363 sale is also subject to conditions including regulatory clearance and a break-up fee.
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Sleep Number sought a 26-day sale process because it had attempted to sell itself in the months before Chapter 11; it said competing bids would be due July 8, with the sale targeted to close by July 31.
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In its most recent quarter, the company reported net sales fell 19% to $319 million, gross margin contracted partly because it was “off-loading unsold inventory,” and net loss rose to $50 million from $9 million a year earlier.
Sleep Number Corp. filed for Chapter 11 bankruptcy on June 12 in New York, announcing a $415 million all-cash deal to sell itself to Sleep Country Canada. The Minneapolis mattress maker listed about $1.3 billion in debt, according to Retail Dive, and blamed an "unsustainable" capital structure built on weak sales, shrinking margins, and volatile U.S. trade policy.
CEO Linda Findley said the sale would "position us to expand our business through future international expansion." Shares fell to 41 cents on the day of the filing — a 95% drop over four months — and analysts say common shareholders will likely get nothing back, according to Retail Dive.
Sales Collapsed as Tariffs and Debt Piled Up
Sleep Number's trouble built over three years. High interest rates crushed demand for big-ticket "smart" beds that often sell for $3,000 to $10,000. In Q1 2026, net sales fell 19% to $319 million, according to The Middle Market. Net loss jumped to $50.3 million from just $9 million a year earlier. Gross margins shrank partly because the company was "off-loading unsold inventory" at lower prices.
Trade policy made things worse. The U.S. imposed sweeping IEEPA-based tariffs in April 2025, hitting Sleep Number's global supply chain hard. The Supreme Court struck those tariffs down in February 2026, but the administration quickly replaced them with a 10% global tariff, according to Detroit News. Management said the "unpredictable shifting" trade rules made cost forecasting nearly impossible during an already fragile stretch.
Sleep Country Canada Steps In as Stalking-Horse Buyer
Sleep Country Canada entered a stalking-horse agreement — meaning it set the opening floor price — of $415 million cash for substantially all of Sleep Number's assets, according to Retail Dive. Competing bids are due July 8, with an auction set for July 13 and a court hearing July 15. The deal is targeted to close by July 31. Sleep Country gets a break-up fee equal to 3% of the purchase price plus up to $4 million in expenses if a higher bid wins.
Sleep Country CEO Stewart Schaefer said the deal would "accelerate growth across the United States while introducing Sleep Number's products to consumers in Canada," according to Furniture Industry News. The combined company would become the largest mattress and bedding retailer in North America. Sleep Number sought a fast 26-day sale process because it had already been trying to sell itself for months before filing.
$260 Million Lifeline Keeps Stores Open During Auction
To stay operating during the sale process, Sleep Number secured up to $260 million in debtor-in-possession (DIP) financing — essentially a bridge loan that keeps the lights on in bankruptcy. The structure includes $65 million in new money and a $195 million "roll-up" of existing debt, according to The Middle Market. The loan carries an interest rate of SOFR plus 8.00% and matures in three months, with US Bank acting as agent.
Sleep Number said it will continue paying employees without interruption and will honor all warranties, gift cards, and rewards points. The company has already rejected leases on 44 closed stores. Real estate firm A&G Real Estate Partners is reviewing the remaining 570-plus locations to decide which stores survive, according to KARE 11.
Suppliers and Shareholders Left Holding the Bag
The $415 million bid falls far short of Sleep Number's $1.3 billion in total debt. That gap means secured lenders get paid first, leaving little for anyone else. UBS analyst Dan Silverstein had already cut his price target to $2 earlier in 2026, warning that "capital structure risks outweighed operational positives." After the filing, analysts widely expect a total wipeout for equity holders, according to The Middle Market.
Unsecured suppliers face steep losses too. Sleep Number owes roughly $28.7 million to trade creditors, with Leggett & Platt — a major bedding components maker — owed over $10.2 million alone, according to Furniture Industry News. In distressed bankruptcies like this, unsecured creditors typically recover only cents on the dollar when the sale price does not cover total claims.
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