Billionaire Leon Black is going to the mat with America’s largest mattress maker.
Black’s Apollo Global Management is suing Serta Simmons over “an unlawful scheme” to lower its $2.4 billion debt stack without the approval of all of its lenders.
The alleged scheme, which would give Serta an extra $200 million in cash while also reducing its debt by $400 million, provides “special benefits to a group of favored lenders,” according to the New York State Supreme Court complaint filed on Thursday.
Apollo, together with investment firms Angelo Gordon and Gamut, have asked a judge to halt the refinancing, which Serta Simmons sought to shore up its finances amid sagging sales worsened by the coronavirus.
As The Post reported last month, the mattress seller, whose brands include Serta, Beautyrest and Tuft & Needle, has been facing a liquidity crunch as sales have dried up due to COVID-19 lockdowns that have shuttered major mattress retailers like Mattress Firm.
In an effort to beef up its books, Serta Simmons this week announced a deal with a majority of its senior and junior lenders to borrow more money while also reducing its debt.
But Apollo, Angelo Gordon and Gamut — who recently bought about one-third of Serta’s $1.95 billion in senior debt at a deep discount — claim that they didn’t agree to the deal, which means it’s in violation of the company’s credit agreements.
Companies normally require all senior lenders to agree to any loan modifications, and Apollo’s lawyers say the refinancing, if allowed to proceed, will endanger the $2 trillion credit market.
“If majority lenders can conspire with borrowers to subordinate the minority, there are billions of dollars of loans that are at risk of having value stripped away in an instant,” the papers say.
Apollo and its partners had made an alternative proposal to the 150-year-old company that included a $200 million loan, sources said. It was rejected because it called for creating a new Serta Simmons subsidiary to hold the company’s intellectual property rights, sources said.
Apollo’s suggested strategy has become popular among debt-strapped companies desperate for quick cash to survive the coronavirus. But it’s not risk free.
Travel solutions company Travelport, for example, recently did something similar so its Wall Street owners, Elliot Management and Siris Capital, could lend it some fast cash. By establishing a new unit to hold the intellectual property, it was able to bypass existing lenders to get the money. But senior debt-holders like Blackstone Group’s GSO Capital have since threatened to sue to unwind the transaction.
Thursday’s legal papers suggest Serta could claim it never closed the debt purchases that Apollo started buying in March.
Serta Simmons didn’t respond to a request for comment and Advent declined to comment.