On June 12, 2026, Sleep Number Corporation and its subsidiaries filed voluntary Chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York.
On June 12, 2026, Sleep Number Corporation and its subsidiaries filed voluntary Chapter 11 petitions in the United States Bankruptcy Court for the Southern District of New York. The Bankruptcy Court granted a motion for joint administration under Case No. 26-11399. No judge has been assigned just yet. The company simultaneously entered into a stalking-horse Asset Purchase Agreement with SNBR, Inc., a wholly-owned subsidiary of Sleep Country Canada Inc., under which the purchaser agreed to acquire substantially all of the company's assets for $415 million in cash plus the assumption of certain liabilities, and a DIP financing agreement with its prepetition lenders.
Asset Sale
The breakup fee on the sale is set at 3.0% of the base purchase price — approximately $12.45 million — establishing a meaningful floor for competing bidders under 11 U.S.C. § 363(b) and (f). The seller can "credit bid" its break-up fee and legal expenses in any auction. The proposed bidding procedures contemplate a bid deadline of July 8, an auction date of July 13, a sale-approval hearing on July 15, and a closing by July 31. The company argues the compressed timeline is justified by a prepetition 14-week marketing process during which it contacted 53 potential purchasers; 19 executed NDAs and five submitted preliminary proposals.
DIP Financing
The DIP would provide up to approximately $260 million of DIP financing, comprising (i) new-money superpriority senior secured term loan commitments of up to $65 million (with up to $50 million available upon entry of the interim DIP order) and (ii) roll-up loans converting up to $195 million in prepetition secured obligations into DIP obligations under the DIP Credit Agreement. Roll-up structures of this magnitude — converting $195 million of prepetition exposure into DIP superpriority status — routinely draw objection from unsecured creditors' committees on the grounds that the exchange consideration is inadequate relative to the priority enhancement conferred; practitioners should monitor whether a committee is appointed and whether it challenges the roll-up on adequate-protection or good-faith grounds.
Funded Debt and Leases
According to the first-day declaration, the company carries approximately $672.5 million of funded debt, comprising approximately $475 million outstanding under a revolver, $177.5 million under a term loan entered into in 2021, and an additional $20 million term loan entered into in 2026. On the real-estate side, Sleep Number filed a motion to reject leases in 44 non-operational locations, consistent with 11 U.S.C. § 365(a). A&G Real Estate Partners is advising on the broader lease rationalization. Davis Polk & Wardwell is the debtors' legal advisor, Guggenheim Securities the investment banker, and AP Services (an AlixPartners affiliate) provides interim management. Sleep Country Canada is advised by Goodwin Procter LLP as legal advisor and PwC as financial advisor.
Creditor Next Steps
For trade creditors and general unsecured claimants, the central recovery question turns on whether the $415 million stalking-horse floor (or any overbid) generates surplus value above the DIP superpriority claims, the prepetition secured credit facility, and the roll-up obligations — all of which will be satisfied at or near the top of the waterfall. SNBR shareholders have been warned that common stock is likely worthless, and the company is facing Nasdaq delisting. Creditors should register at the Kroll claims portal (restructuring.ra.kroll.com/SleepNumber) immediately and monitor for the publication of the bar date order and any committee-formation notice.
What to Watch
The Sleep Number filing illustrates recurring tensions in large retail Chapter 11s under § 363. The roll-up component — converting $195 million of prepetition secured debt into DIP superpriority — is a structural feature courts have permitted under the "substantial contribution" and "cross-collateralization" doctrines but which the Third Circuit and Second Circuit have scrutinized with varying levels of deference. In the Second Circuit — Sleep Number's venue — the controlling standard remains whether the roll-up constitutes a reasonable exercise of business judgment and does not constitute disguised plan confirmation. With no judge yet assigned in Case No. 26-11399, practitioners should monitor the initial case assignment, as docket management and DIP-challenge briefing timelines will depend on the judge's individual procedures. The compressed sale schedule (bid deadline July 8 → auction July 13 → approval July 15 → closing July 31) also compresses the window in which a newly-formed unsecured creditors' committee can assess plan-versus-363 trade-offs under the framework articulated in In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983), and its progeny.
In the crypto-insolvency vertical, BlockFills and Power Block Coin together illustrate the two dominant recovery pathways: going-concern 363 sale of technology and customer-book assets (BlockFills/Keyrock) versus full liquidation with trustee pursuit of avoidance actions and insider-transaction claims (Power Block Coin/Celsius recovery). The digital-asset characterization question — trust vs. estate property — is outcome-determinative in the BlockFills context in a way that has no direct analogue in the Power Block Coin case, where the Celsius preference claim operates as a conventional unsecured trade-creditor assertion subject to the preference defense framework of § 547(c).
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This advisory is prepared for informational purposes only and does not constitute legal advice. Recipients should consult qualified counsel regarding specific legal questions or matters.
Bankruptcy, Creditor Rights, Advisory