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

(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.

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Simmons manufactures the Beautyrest mattress seen here. (Photo: Business Wire)

The mattress company Simmons is filing for bankruptcy under the weight of $1.3 billion in debts, but private equity firms that bought and sold it have profited handsomely. (©Wallula Junction)

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In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, buyout kings like upended the old order on Wall Street.
- Julie Creswell

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COMMENTS

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Showing 3 of 5 comments

bewilderbeast

Oct 5, 2009 12:47 PM CDT

This is the vaunted, hallowed "capitalist" "free enterprise" system. It's a lie. What we have instead of risk and reward, is reward with little risk if you're connected right. Even when scams are exposed, no real people get nailed (certainly no "high-ups"). Instead the crimes are "victimless" (your pension? Tough) and perp-less (it wasn't old Joe that did it, it was the corporation Steal, Inc that did it - sue them. Oops they've declared bankruptcy, Tough).

Doctor-Zaius

Oct 5, 2009 12:43 PM CDT

Exactly. This whole mess was caused by deregulation of big business.

srkenny

Oct 5, 2009 1:34 AM CDT

This sounds like the bust-out of the Tiki lounge restaurant in Goodfellas.

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Money • US

private equity • bankruptcy • Thomas H. Lee Partners • credit market • buyout firms • mattress

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Simmons Bankruptcy: Study in Private Equity Run Amok