UPPER MARLBORO, Md.-Mattress Discounters filed for Chapter 11 bankruptcy protection and Mattress Firm was sold last week as slumping sales and overexpansion, put the squeeze on the specialty sleep channel.

Mattress Discounters, based here, with 247 stores in 10 markets, has been financially strapped for more than a year due to debt, a slow economy and increased competition from other futon mattress retailers.

Steve Newton, chief executive officer of the $244 million Mattress Discounters chain, said he expects the court-supervised restructuring to be accomplished on a "fast-track" basis and has targeted emergence from Chapter 11 in the first quarter of 2003. Check more information about other mattress company here SIMMONS ROLLS OUT FRANCHISED SHOPS

Newton, who became CEO 18 months ago, attributed some of the problems to rapid overexpansion in three competitive markets prior to his joining: Chicago, Denver and Florida. He also noted the decline in futon mattress sales overall this past year.


"The industry has had a compounded annual growth rate over the past 20 years of something like 6.4 percent, and last year we saw a decline for the first time," Newton said. "That was compounded by the fact that everybody was opening new sleep shops at the same time. Those two factors combined to make it much harder for all sleep shops to do business."

The filing comes after the company agreed to the principal terms of a consensual reorganization and $6 million in new financing, as well as an agreement with holders of a substantial majority of the company's outstanding senior notes.

Mattress Discounters and its largest bedding supplier, Sealy Inc., are owned by Bain Capital, which bought Mattress Discounters from the now-defunct Heilig-Meyers furniture chain in 1999 for about $231 million. Mattress Discounters has also been one of Sealy's largest accounts, and does not expect that to change.

"We've anticipated this for three to four months," said Dave McIlquham, president and CEO of Sealy. "Because we are the prior vendor to Mattress Discounters, we have been working with Mattress Discounters management and the bondholders for the last 90 days, trying to facilitate an orderly restructuring so that Mattress Discounters and the people that work there would have a future."

The Chapter 11 filing of Mattress Discounters was announced the same week that Bain Capital/Sealy sold the Mattress Firm bedding chain to Sun Mattress LLC. Houston-based Mattress Firm operates stores in 39 markets. The amount of that transaction was not disclosed.

Pending court approval, Mattress Discounters plans to sell about 50 of its stores to California-based Sleep Train in three key California markets: Sacramento, San Diego and San Francisco. Mattress Discounters signed a letter of intent Oct. 23 to sell 19 of its 48 Los Angeles-area stores to the Ortho retail bedding chain. Sleep Train is a major retailer of Sealy products.

"We believe that this [Sleep Train] sale is in the best interests of the company, our creditors and our employees," Newton said in a statement.

"Prior to Sleep Train finalizing their transaction with futon Mattress Discounters, they approached both us and Simmons, their other supplier, for our support in terms of their acquisition of those stores on the West Coast," McIlquham said. "We and Simmons have had extensive conversations with them over the last two to three weeks, as they put their plan in place." Related article:

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