Simmons Bankruptcy: Study in Private Equity Run Amok

Buyout firms profited as mattress maker saw its debt skyrocket
By Jason Farago,  Newser Staff
Posted Oct 5, 2009 7:30 AM CDT
Simmons manufactures the Beautyrest mattress seen here.   (Photo: Business Wire)
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(Newser) – The mattress company Simmons will be filing for bankruptcy protection soon, wiping out bondholders and jeopardizing more jobs at a company that's already fired a quarter of its work force. While Simmons watched its debts balloon nearly tenfold since 1991, a string of private equity firms bought and sold the company seven times, making $750 million as the company collapsed. Simmons is only one of several firms pumped up and sold in what the New York Times calls "a Wall Street version of Flip This House."

The Times compares the private equity boom of the last decade, fueled by easy money,  to the subprime mortgage boom, and predicts many more casualties. After Thomas H. Lee Partners bought Simmons in 2003, using borrowed cash,  it then sucked out millions in fees and used more borrowed money to pay itself dividends, which only pushed Simmons deeper into debt. Now that cheap money is a thing of the past, Simmons is drowning in debt. And it's not alone: Of the 220 companies that defaulted this year, more than half were once owned by private equity.