Mattress company Sleep Number Corporation today (12 June) filed for bankruptcy intending to pursue a sale process backed by a USD 415m stalking horse bid from a Sleep Country Canada affiliate.

The debtors, which are known for their smart beds, filed the Chapter 11 case in the US Bankruptcy Court for the Southern District of New York. Judge Kyu Young Paek is overseeing the case and scheduled a first day hearing for 3pm ET today.

Sleep Number intends to fund its case with DIP financing from its existing lenders. The financing includes up to USD 65m in new money and up to USD 195m via a roll-up of prepetition debt.

Debtwire Dockets: Sleep Number Corporation (Access required)

The company

Sleep Number was founded in 1987 as Select Comfort Corporation. The company opened its first store in 1992, bringing personalized sleep solutions directly to customers. In 2000, it introduced home delivery and professional set-up services. Sleep Number became publicly traded in 1998 and changed its name from Select Comfort in 2017.

According to a first day declaration from executive vice president and chief financial officer Amy O’Keefe, Sleep Number leads the personalized sleep wellness industry because its mattresses are designed to evolve with sleepers. With adjustable firmness, pressure-relieving support, and temperature-balancing comfort, the beds adapt to customers’ changing needs. Sleep Number’s mattresses and bases include “smart” products that combine physical and digital innovations, O’Keefe said. The mattresses offer digital sensing to provide sleep health and quality metrics, and feedback to improve the sleep of each individual. They also use “sense and do” technology, which adjusts the mattress to keep the sleeper comfortable throughout the night.

Based in Minneapolis, Minnesota, Sleep Number has about 2,920 employees and operates 572 Sleep Number stores with locations in all 50 states.

In March, Sleep Number announced a redesigned portfolio, streamlining from 12 to seven bed options. It introduced five new beds that offer superior comfort, personalized adjustability, and temperature benefits, O’Keefe said. By streamlining the portfolio, she noted, Sleep Number made it easier for customers to find the right fit.

The debt

The company’s funded debt includes a revolving credit facility and two term loan facilities. All obligations under the secured credit facilities are guaranteed by all of the debtors and are secured by a security interest in substantially all assets.

As of the petition date, Sleep Number has about USD 672.5m in outstanding principal funded debt obligations. This includes USD 475m outstanding under the revolving loans and USD 197.5m under the term loans. In addition to the loans, there is also USD 8.3m in principal amount of letter of credit commitments outstanding under the revolving credit facility.

The descent

O’Keefe said over the last decade, mattress retailers have experienced distress due to underlying factors, including the shift by consumers toward e-commerce, the resulting loss of in-store foot traffic and sales, difficulties from maintaining a right-sized real estate portfolio and distribution network, and diminishing profit margins. She noted that those issues led to a historic industry recession.

The combined effects of increased competition, a reduction in discretionary consumer spending, an unpredictable regulatory environment, increased inflation and interest rates, a less dependable global supply chain, and resulting increases in operating costs negatively impacted the company’s bottom line.

One recent macro-economic factor is the unpredictable shifting of trade rules imposed by the US government on top of an already vulnerable global supply chain. Since April 2025, the government has been imposing and proposing a new wave of tariffs on imported goods. Sleep Number relied heavily on these types of goods for manufacturing and assembling its beds and mattresses, O’Keefe said.

While a US Supreme Court ruling in February determined that the International Emergency Economic Powers Act of 1977 does not authorize the president to impose tariffs, O’Keefe said, the trade landscape remained complex, and the company continued to manage ongoing regulatory uncertainties.

While the “unpromising” macro-economic trends adversely affected dealings with foreign suppliers and its own business operations and liquidity situations, O’Keefe said Sleep Number initiated internal reorganizations to reduce its operational costs, began marketing its assets to third-party buyers, and sought additional sources of liquidity.

Sleep Number retained Guggenheim Securities in February as its investment banker and also engaged AlixPartners as its operational advisor. The company additionally mandated with existing external counsel, Davis Polk & Wardwell, to advise on potential restructuring options. The company and its advisors pursued several options, including seeking recapitalization and financing opportunities from new sources and existing stakeholders, soliciting interest in strategic combinations, and attempting to market and sell its assets and operations to third parties.

In March, Sleep Number began actively soliciting both recapitalization and bridge financing proposals. In total, Guggenheim contacted 33 parties, 26 of which executed non-disclosure agreements and got access to diligence materials. Ultimately, only one party submitted a written recapitalization proposal. After evaluating the deal with its advisors, O’Keefe said the company decided the proposal was not actionable.

While Sleep Number got several proposals for senior bridge financing, the existing lender group would not consent to being primed, and no actionable proposals for unsecured or junior financing were received. Sleep Number decided that the only viable pathway to maintain its business and preserve liquidity was to raise incremental bridge liquidity from its existing lenders while launching a marketing process for a going-concern sale.

The Chapter 11 case

According to O’Keefe’s declaration, Sleep Number entered Chapter 11 with a stalking horse bid from SNBR, an affiliate of competitor Sleep Country Canada, for USD 415m in cash and the assumption of certain liabilities, subject to purchase price adjustments. Sleep Country operates brands including Dormez-vous, Casper, Endy, Hush, Silk & Snow, and Simba, in addition to the Sleep Country brand. It is Canada’s leading specialty sleep retailer.

O’Keefe said the sale transaction contemplates continuing the “robust” 14-week prepetition marketing process by getting approval of the stalking horse asset purchase agreement and conducting a sale process on an expedited timeline. The company is seeking a 2 July hearing on the bid procedures, a 8 July bid deadline, a 13 July auction, and a 15 July hearing to approve the sale. The sale would need to close by 31 July.

To fund the bankruptcy proceedings, a group of Sleep Number’s existing lenders will fund up to USD 65m in new money and up to USD 195m via a roll-up.

Another factor of the Chapter 11 case is that Sleep Number utilizes several partnerships with third parties. Sleep Number has worked with the Mayo Clinic, the American Cancer Society (ACS), Northwestern University, and the University of Pittsburgh in several research studies. In 2022, Sleep Number partnered with ACS to study the connection between cancer and sleep quality, with the goal of developing the first-ever sleep strategies and guidance for cancer patients and survivors.

Further, to expand its national profile, according to the declaration, Sleep Number has been the official sleep and wellness partner of the National Football League (NFL) since 2018. In 2025, Sleep Number had partnerships with three specific teams. Then, in January of this year, the company announced a strategic partnership with three-time Super Bowl Champion Travis Kelce. As part of the partnership, Kelce committed to acquire common stock in the company on the open market and to be granted compensatory restricted stock units that will vest over the initial three-year term of the relationship, subject to customary vesting conditions. He also committed to participate in future marketing efforts.

Sleep Number could either look to assume its contract with Kelce and assign it to the entity that purchases the company, or it could reject the contract, in which case Kelce would have a general unsecured claim for any damages he may have as a result of the rejection, which is treated as a breach of the contract immediately before the bankruptcy filing. If Kelce is ultimately looking to get out of his contract with Sleep Number (particularly given that shareholders often do not see a recovery under Chapter 11 plans), he could look to oppose the assumption of his contract to the purchaser on the grounds that it is a contract for personal services. Section 365(c) of the Bankruptcy Code prohibits a debtor from assigning a contract that cannot be assigned under applicable non-bankruptcy law without permission of the other contracting party. This is the case regardless of whether or not the contract contains an anti-assignment clause.

Although the issue turns on state law, it is usually the case that a contract is an unassignable personal contract if it involves a personal relation of confidence between the parties or relies on the character and personal ability of a party. In other words, there must be a special relationship between the parties or the party to perform must possess special knowledge or a unique skill. If the roles were reversed and Kelce were the debtor, it is likely that a court would prohibit Kelce from assigning the contract to a lesser known (or less accomplished) party. Proving a personal relationship contract may be more difficult given that Sleep Number is the debtor and would not have as much of a unique ability to perform.

The advisors