Hollander Sleep Products has filed for bankruptcy, citing a severe cash squeeze due in part to substantial price increases for materials.

The Boca Raton, Fla.-based supplier of pillows, mattress pads and other bedding products said it has only $523,000 in cash on hand but secured lenders have agreed to provide it with $118 million to keep it operating during the bankruptcy process.

A Chapter 11 reorganization plan negotiated with lenders would convert about $166.5 million of Hollander’s $233 million debt burden to equity but the company said it “will also be running a marketing process to determine whether there are alternative transactions to ensure that the company maximizes value.”

“Upon emergence [from bankruptcy], we will have a stronger balance sheet and the financial flexibility needed to compete in today’s dynamic business environment now and over the long-term,” CEO Marc Pfefferle said in a news release.

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Hollander, which was founded in 1953, claims to be the largest bed pillow manufacturer in the world, with an estimated 35% share of the $1 billion pillow market. It had $526.9 million in net revenue in 2018, producing items for licensed brands such as Ralph Lauren, Simmons, and Calvin Klein and for its own brands.

Pfefferle, a restructuring specialist with Carl Marks Advisors, said in court papers that “the sleep industry as a whole is both healthy and growing” and the basic bedding segment is “generally recession resilient.” But recent substantial price increases on materials, including fiber, down, and feathers, “have significantly reduced Hollander’s profit margins for many products, which are generally sold on low profit margins to begin with.”

In addition, Hollander has been spending money to integrate Pacific Coast Feather Co., which it acquired in 2017.

“With $233 million of outstanding indebtedness and limited access to credit, the company is facing severe liquidity constraints,” Pfefferle said.

Management has identified steps it can take to get the company back on track, he said, including selective price increases and material efficiencies; continued diligence in cost-effective sourcing; investing in capital and technological advancements; and building Hollander’s e-commerce business.

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