Davis Polk & Wardwell is advising Sleep Number Corporation in its Chapter 11 filing in US Bankruptcy Court Manhattan, with Goodwin Procter acting for Sleep Country Canada as stalking horse bidder in a Section 363 sale process that values the business at $415 million and targets a court-approved closing by 31 July 2026.
Sleep Number filed for bankruptcy protection on 12 June 2026, citing an unsustainable capital structure despite operational progress on its turnaround programme. The company’s total assets stand at $642.3 million against total debt of approximately $1.28 billion, comprising $475 million outstanding under a revolving credit facility, $177.5 million under a term loan entered into in 2021, and a further $20 million term loan drawn in 2026. Chief executive Linda Findley confirmed the Chapter 11 process will be used to pursue a sale of the business rather than a standalone reorganisation.
The stalking horse agreement with Sleep Country Canada — which operates 300 stores across Canada — carries a 3 percent break-up fee and a $4 million expense reimbursement cap. The bidding procedures provide for a bid deadline of 8 July, an auction on 13 July, a sale approval hearing on 15 July and a closing on 31 July.
The compressed timeline reflects a 14-week prepetition marketing process during which the company contacted 53 potential strategic and financial purchasers. Of those, 19 executed non-disclosure agreements and five submitted preliminary proposals.
Sleep Number is seeking up to $260 million of debtor-in-possession financing from US Bank as agent, comprising $65 million of new money and the roll-up of $195 million of prepetition obligations on a 3:1 basis at S+800. The company received three competing DIP proposals for priming facilities but existing lenders declined to consent to being primed. Guggenheim Securities is acting as investment banker and AlixPartners affiliate AP Services as interim management. A&G Real Estate Partners is advising on the store footprint review, with a motion filed to reject leases at 44 non-operational locations. PwC is acting as financial advisor to Sleep Country Canada alongside Goodwin Procter.
For restructuring and insolvency practitioners the Sleep Number filing adds to a growing pipeline of named Section 363 sale processes in the US consumer retail sector. Davis Polk’s instruction on the debtor side and Goodwin Procter’s mandate for the stalking horse reflect the continued concentration of major Chapter 11 mandates at a small group of specialist Am Law 100 restructuring platforms. Kirkland & Ellis, Latham & Watkins and Weil Gotshal — the three largest restructuring practices by revenue — will be monitoring the auction process for competing bid opportunities as the 8 July deadline approaches.