Sleep Number Completes $529.5M Sale, Proposes Liquidation

Sleep Number Completes $529.5M Sale, Proposes Liquidation


Debtor(s)	Sleep Number Corporation and four debtor affiliates
Court	U.S. Bankruptcy Court for the Southern District of New York
Case Number	26-11399
Petition Date	June 12, 2026

Case Snapshot

The jointly administered debtor group also includes Select Comfort Retail Corporation, Select Comfort Canada Holding Inc., Select Comfort SC LLC, and Sleep Number Health Corporation. Case identification and debtor roster, p. 1

The auction raised the cash purchase price

Sleep Country's acquisition affiliate entered the case as stalking horse with an offer of $415 million in cash plus the assumption of certain liabilities, subject to purchase-price adjustments. The debtors received two qualified bids, from SNBR Inc. and Brooklyn Bedding LLC, and held an auction on July 13. SNBR won; Brooklyn Bedding was designated the backup bidder. Disclosure statement, pp. 27, 32

The cash purchase price increased by $114.5 million, calculated by subtracting the initial $415 million cash offer from the final $529.5 million cash price. Separately, the debtors assigned $172.3 million of value to noncash benefits in the winning bid. The $701.8 million total adjusted purchase price therefore combines cash consideration with benefits valued by the debtors. Disclosure statement, pp. 27, 32

The court approved the transaction at the July 20 sale hearing, entered the sale order July 21, and entered an amended order July 30. Closing followed July 31. The sale left the estates without a standalone operating business, and substantially all Sleep Number employees became employees of SNBR Inc. Disclosure statement, pp. 12, 23, 32

Lease decisions continued after closing. A September 25 notice extended the purchaser's designation period to the earlier of October 30 or a date at least 14 days before the confirmation hearing, subject to further extensions. Closing the business sale therefore did not finish the contract and lease work needed for the estates' wind-down. Designation-period extension notice, pp. 1–2

Financing supported the sale and was repaid at closing

Sleep Number entered Chapter 11 with approximately $672.5 million in outstanding principal funded debt: $475 million under its revolving facility, $177.5 million under its 2021 term loans, and $20 million under its 2026 term loans. The debtors described a pandemic-era expansion of their store footprint, manufacturing capacity, and debt levels, and said increased leverage reduced their ability to navigate prolonged macroeconomic headwinds. Disclosure statement, pp. 23–25

The debtor-in-possession financing package provided capacity for up to $65 million in new money and up to $195 million in prepetition obligations rolled into the postpetition facility. The $260 million package thus mixed new lending with conversion of existing debt. New-money availability depended on draw conditions and the financing orders; the stated limits do not establish how much fresh cash was advanced. Disclosure statement, pp. 28–30

At closing, approximately $267.4 million of sale cash repaid debtor-in-possession obligations, and $10 million went into an escrow for post-closing adjustments. Those uses of proceeds help explain why the cash sale price was larger than the funds remaining for prepetition creditors and the wind-down. Disclosure statement, p. 32

The creditor settlement sets aside a $3.5 million gross trust

The proposed plan defines the general unsecured creditor trust's assets as $3.5 million in estate cash. Its distributable net assets would equal that amount less trust fees and expenses, including claims-reconciliation costs and operating reserves. Prepetition lenders' deficiency claims are excluded from trust beneficiaries. General unsecured creditors would share the net pool pro rata based on allowed claims. Proposed plan, pp. 16, 34

Creditor or interest group	Proposed treatment
Prepetition loan claims, Class 3	Retain prepetition and adequate-protection liens; receive a pro rata share of distributable assets
General unsecured claims, Class 4	Receive a pro rata share of the trust's net assets; lender deficiency claims excluded
Existing equity interests, Class 7	Cancelled on the plan's effective date, with no distribution

Principal Proposed Plan Treatments

These treatments come from the September 4 plan and remain conditional on the plan becoming effective. The $3.5 million trust is a gross funding amount; the eventual creditor payout depends on expenses and allowed claims. Proposed plan, pp. 16, 33–35

The debtors, secured parties, and unsecured creditors' committee signed a plan-support stipulation September 16. The settlement pairs the unsecured-creditor trust and exclusion of lender deficiency claims with committee support for an interim secured-lender paydown and the plan. Plan-support stipulation, pp. 1–3 Paydown motion, pp. 5–6

On September 17, the court authorized the interim paydown defined in the motion: $135 million upon entry of the order, plus the first dollars received from specified processor reserves, totaling approximately $18.5 million. The roughly $153.5 million authorization includes that reserve-recovery component; it does not establish that the entire amount had already been paid. Paydown motion, p. 2 Paydown order, pp. 1–2

The debtors' September 30 liquidation analysis assumes broadly similar recoveries from remaining assets under Chapter 11 and a hypothetical Chapter 7 conversion. It identifies a different treatment of costs and settlement benefits: the $3.5 million trust might not survive conversion, while a Chapter 7 trustee, additional professionals, and claims litigation could consume estate funds. Those are the debtors' assumptions for a hypothetical comparison. Liquidation analysis, pp. 4–6

Release objections remain before the court

In its October 7 objection, the U.S. Trustee argues that returning a ballot without opting out should not establish consent to third-party releases, even when the creditor votes against the plan. It also challenges releases covering related parties without their consent, the disclosure of consideration for estate releases, and exculpation protections extending to non-estate fiduciaries and future parties. These are objections, rather than court findings. U.S. Trustee objection, pp. 9–10

The debtors' October 13 reply argues that the disclosure statement supplies adequate information and that challenges to the releases' validity should be addressed at confirmation. They defend the releases as consensual and emphasize that the opt-out mechanism applies to creditors who submit ballots. The reply also reports that landlord feedback and U.S. Trustee comments about the voting report were incorporated into a revised proposed solicitation order. Debtors' reply, pp. 2, 4–7

The October 13 agenda listed the disclosure-statement motion for an October 15 hearing at 10:00 a.m. Eastern time. At the October 14 cutoff, approval of solicitation, the final release provisions, and the amount ultimately distributed from the unsecured-creditor trust remained unresolved. Hearing agenda, pp. 1–2 Proposed plan, pp. 16, 34