Springs Window Fashions: A Blind Bet

Welcome to the 214th Pari Passu Edition

Today, we will dive into Springs Window Fashions (SWF), a leading global manufacturer of custom window coverings. The company completed an LME in 2024 that addressed liquidity and extended maturities; however, ongoing housing market pressures prolonged distress, and it expects a second transaction within the next 12 months. It joins a growing list of building products businesses in distress, including Empire Today, a flooring company we previously covered.

During COVID, consumers stuck at home spent money to improve their living spaces, helped by stimulus checks, low rates, and a hot housing market. Demand for custom window coverings surged, and SWF grew revenue by ~40% in 2020. In September 2021, Clearlake bought SWF in a ~$3.4bn LBO financed with ~$2.25bn of debt, betting that demand would hold up as the pandemic boom faded. 

However, inflation and rapid rate hikes pushed up costs while freezing the housing market, so existing home sales and remodeling activity dried up and consumers pulled back on big-ticket home spending. Revenue declined through 2024, margins compressed, and the business started burning cash. By late 2024, SWF negotiated a deal with lenders to proactively raise liquidity and capture discount.

In this write-up, we'll walk through SWF’s business model, trace the path to distress from the 2021 buyout through the 2023 demand slowdown, examine how the lender groups formed, and break down the December 2024 transaction. We will also look ahead, as the company just hired Simpson Thacher and lenders are actively discussing how to address liquidity and the maturity wall the initial LME created. 

With that said, let's dive in!

Controlling light in a house or office is both an artistic and utilitarian task, as light can change the appearance, feel, or designation of a space. In houses with lots of big windows, window treatments like shades, curtains, and blinds serve that important purpose, but they're also designed to fit the owner's taste. Because window treatments serve such an important yet subjective purpose, many companies build their sole business around manufacturing thousands of custom and stock designs, and one of these businesses is Springs Window Fashions.

Springs Window Fashions (SWF) is a vertically integrated manufacturer and distributor of custom-made and stock window coverings, employing more than 9,000 people across manufacturing and distribution operations in the United States, Mexico, and Europe. At its core, SWF offers a full range of window treatments, the products installed on or around a window rather than the window itself, including blinds, shades, shutters, and drapery. To be clear, the company does not make the windows themselves. 

Motorization is an increasingly important layer on top of these core products. A motorized shade can be raised, lowered, or scheduled from a phone or a wall remote, so it follows the light through the day without anyone touching it, allowing it to automatically close against afternoon glare, open at sunrise, or tilt to keep a room cool while no one is home. 

SWF generates approximately $1bn in revenue by serving both residential and commercial markets, fulfilling both simple orders for residential houses and large-scale commercial construction or redesigns. Most of SWF’s demand comes from repair & remodeling (R&R) activity tied to existing home sales and new construction. During Pari Passu channel checks, we learned that ~75% of SWF’s revenue came from R&R activity, meaning existing home sales and general repair work are the largest revenue drivers. To sell its products, the company operates through a portfolio of brands, each aimed at a different price point and buyer, unified loosely under the company positioning of "Inspiring Spaces, Brilliantly Simple." 

For the residential segment, SWF sells its window treatments through retail and dealer channels. The retail channel runs through national big-box home improvement chains, primarily Home Depot and Lowe's. SWF’s Bali brand is most closely associated with this channel, as the bulk of its volume moves through these large chain stores. Home Depot and Lowe's alone account for roughly 28% of the company's total revenue, suggesting the retail channel as a whole represents something closer to a third of overall sales. Within this channel, blinds and other treatments are typically sold on a per-unit, or per-window, basis. Customers can visit a retailer's website or store, select a design, specify the window dimensions, and receive a price, generally ranging from about $50 to $250 or more per shade or blind. 

Like the retail channel, the dealer channel sells to residential customers, but through independent decorators, specialty design shops, and franchise networks such as Budget Blinds. In a typical process, a customer looking to renovate their window treatments would visit a decorator store or franchise, where a representative designer would visit their home, propose designs that fit the customer’s home, and send the order to SWF. As a result, products sold through this channel tend to be more custom and technologically advanced, with higher automation and motorization than in retail, reflecting both the higher price point and the more involved sales process. Despite the custom nature of these products, SWF maintained short lead times of 2-4 weeks for custom orders, partly because production was mostly done nearby in Mexico. The dealer channel represented about 40% of SWF’s total revenue and had the highest margins due to the premium custom category that it sells. Together, the retail and dealer channels account for roughly 75 to 80% of total revenue, with the remainder coming from the commercial channel, built around the Mecho and SWFcontract brands. 

Unlike the residential segment, commercial segment sales are specification-driven, meaning that the product gets specified into a building's plans by an architect, often a year or more before installation, giving this channel the longest and most stable revenue visibility of the three, though individual large projects can create meaningful swings from one year to the next since one-off orders may be in millions of dollars.

SWF has four manufacturing facilities, one in Michigan and the rest in Mexico, which gives it a relatively low labor cost base. The Mexican footprint also shielded the company from tariff impacts compared with companies that manufacture in China.

The business is mostly variable cost rather than fixed, since most products are built to order rather than stocked. As a note, having a variable cost base protects the business against volume declines; however, if input costs rise, these costs directly compress margin. The three biggest cost drivers are labor, raw materials (roughly 25 to 30% of which are tied to petroleum-based inputs like vinyl and synthetic fabrics), and freight, which will be important in understanding business pressures when we discuss the path to distress [1]. 

As always, let's look at how Springs Window Fashions developed over the years to become the company it is today. The company traces back to 1939, when John Graber, working out of his home in Mineral Point, Wisconsin, invented the "Badger Crane," a metal bracket designed to hold drapery panels neatly over Venetian blinds without punching extra holes in the wall. He began booking orders from department stores across the Midwest, and what started as a single hardware product grew into Graber Company, which expanded over the following decades into a full range of blinds, shades, and decorative drapery hardware. Graber's family carried the business forward for years until the company was acquired by Consolidated Foods in 1967 and later sold to Springs Industries, a textile maker, in 1979. 

In 2001, Springs Window Fashions was spun off and bought by Crandall Bowles, CEO of Springs Industries, and Heartland Industrial Partners, a private equity firm [1]. This is when the brand became known as it is today. By then, it had already acquired Bali, its leading retail channel brand, and developed manufacturing capabilities in Reynosa, Mexico. Since then, there were few major developments until 2013, when Golden Gate Capital acquired Springs from Heartland Industrial Partners and the Springs family for approximately $645mm [2]. This is when the company pursued an aggressive M&A strategy, acquiring Horizons, Mecho Systems, SunSetter, Mariak, and Patrician between 2013 and 2017. These deals rounded out SWF’s product range across nearly every category adjacent to its core blinds business. Horizons added custom soft treatments and drapery, Mecho brought decades of expertise in commercial solar shading, SunSetter extended the portfolio into outdoor retractable awnings, and Mariak and Patrician added fabrication and private-label manufacturing capacity.

In 2018, Golden Gate Capital exited the investment and sold Springs Window Fashions to AEA Investors and British Columbia Investment Management (BCI). The new sponsors continued to grow the business, most notably through the acquisition of B&C International, a European manufacturer that gave SWF its first meaningful manufacturing and distribution footprint outside North America; Europe now accounts for roughly 10% of total sales.

In September 2021, Clearlake Capital acquired the company from AEA and BCI for approximately $3.4bn or almost 11x EBITDA [5]. The deal was done in the middle of a zero-interest-rate environment and strong discretionary consumer spending, when many people had the time and cash to spend during COVID. In this case specifically, people were stuck at home during lockdowns, which encouraged many to update and renew major home design components, a dynamic called “nesting purchases”. However, because lockdowns were in place, many of these purchases were delayed until lockdowns started getting lifted at the end of 2020 and the beginning of 2021, resulting in 38% LTM revenue growth in June 2021. 

Clearlake loaded the company with a $1,625mm 1L TL due September 2028 and $625mm of Senior Unsecured Notes due October 2029, resulting in about $2.3bn total debt at close. To fund the rest of the purchase price, Clearlake contributed $1,260mm of cash equity, resulting in ~65% LTV [5]. 

As noted, rates were near zero, and total interest expense was roughly $106mm, compared to $315mm of EBITDA. The term loan also had 1% (~$16.3mm) of annual amortization. In addition, the company had a heavy working capital cycle and around $30mm of annual capex. Putting it all together, we see that the company was expected to generate roughly $110-120mm of free cash flow. 

Clearlake essentially purchased the second-largest player in the global custom window coverings industry, a niche, fragmented market that fit the classic private equity parameters. The company was only smaller than Hunter Douglas, a Dutch multinational corporation and the world leader in custom window coverings and architectural products. Hunter Douglas itself changed hands a few months after the SWF LBO, when 3G Capital agreed in December 2021 to acquire a 75% controlling stake from the founding Sonnenberg family for roughly $7.1bn, or an 8x EBITDA multiple [6]. Notably, Springs Window Fashions carried the highest multiple among the building products and interior design precedent transactions below, at ~11.0x EBITDA, which is also 3 EBITDA turns above Hunter Douglas.

Even after a very strong performance in H2 2020 and H1 2021, Springs Window Fashions was expected to continue growing at solid rates. The macroeconomic environment remained favorable as rates were low, resulting in an active housing market that fueled demand for remodeling and new construction. However, credit agencies expected growth to slow to ~5% in 2022, as much discretionary spending was expected to shift toward leisure and travel [4]. 

However, the company soon experienced a severe reversal in demand as the macroeconomic environment fully exposed how discretionary its products were. Combined with inflationary pressures and idiosyncratic business struggles, Springs Window Fashions became a distress story in just over two years after the LBO closed.

Inflation & Rising Interest Rates

To start, rising inflation and the rate hikes that followed created a multifaceted headwind for the business. The strong 2020 demand for home improvement products like Springs' was partly driven by stimulus checks and money accumulated during COVID. By mid 2022, excess spending, coupled with rising gas prices from the Russia-Ukraine conflict, drove U.S. inflation to a peak of about 7%. For Springs, this showed up first on the cost side, as energy, raw materials, freight, and labor all became more expensive at the same time. The company raised prices to offset the higher costs, but with consumers also facing inflation in everyday goods, demand for discretionary, high-ticket home products softened, which limited how much of the increase it could pass through. 

In June 2022, the Fed began combating record inflation, resulting in a series of rate hikes that raised interest rates to the 5.25%-5.50% range by mid-2023. The rate hikes directly affected the company's cash flow, as the floating rate on the 1L TL (SOFR + 400bps) rose, pushing total interest expense to ~$200mm in 2023, up from $106mm at the time of the LBO. 

Most importantly, mortgage rates rose in tandem with Fed hikes, cooling the active housing market and reducing existing home purchases and new construction starts, both meaningful demand drivers. As the chart below shows, Clearlake bought SWF near the peak of the housing cycle. The strong earnings we saw in H2 2020 and H1 2021 closely correlate with the spike in annualized existing home sales to nearly 7mm. This dynamic is very similar to the one we showed in Empire Today, where Charlesbank bought the flooring business in 2021 at the peak of the home cycle and a home-improvement boom. The downturn that followed for both SWF and Empire Today is very similar. 

Trouble began by the end of 2022, when existing home sales fell to ~4mm, a dramatic 35% decrease from the time of the LBO, and by 2024, the number declined slightly more to a 30-year low [15]. This drop matters particularly for SWF because window coverings are typically one of the largest items a household buys after a move, and sales lag the housing cycle by roughly nine to twelve months. That lag meant the damage from the 2022 rate hikes would soon work its way through the business. This gets us to the second distress factor.

Demand Cooldown

 By 2023, the housing market cooldown showed up in the company’s financials, with revenue declining to ~$1,200mm from ~$1,270mm at the time of the LBO. Beyond housing, the pandemic surge in home improvement spending faded as consumers resumed spending on travel and other services. Window coverings are discretionary, so even households that moved or renovated could defer replacing them as rising energy and food costs squeezed their budgets. Demand continued to weaken in both SWF’s dealer and retail channels through 2024, and the smaller international business saw a double-digit decline, compounded by unfavorable foreign exchange and the Russia-Ukraine conflict. As a result, by 2024, revenue fell further to ~$1,100mm, roughly 13% below the LBO level. 

Because most of SWF's cost base was variable, we would intuitively not expect lower demand alone to cause such a sharp drop in margins, since costs should fall generally in line with volumes. However, reality proved much different. In fact, SWF ended up facing multiple operating pressures that squeezed margins, compounding the effect of declining sales. 

Operating Pressures

SWF’s manufacturing model made it quite sensitive to inflation and rising energy prices. It bought vinyl and synthetic fabrics used in blinds and shades, fabricated many custom orders in Mexico, and shipped finished products to dealers and retailers across the United States. The company faced high freight costs in 2022 and 2023 for shipments from Mexico to the US, driven by high energy prices and supply chain disruptions.

At the same time, labor costs in Mexico were rising in 2023, which we believe reflected labor reforms and the 20% increase in minimum wages by 2024 [8][16]. The stronger Mexican peso compounded the wage increases by raising the dollar cost of production at SWF’s Mexican facilities, a particular problem because the company's sales are mostly denominated in US dollars. Meanwhile, higher prices for the vinyl and synthetic materials used in its blinds and shades continued to weigh on each order. SWF could try to pass those costs through to customers, but that became harder as demand cooled and buyers could defer a purchase or choose a cheaper product. Even though most of its costs are variable, SWF still carries a fixed layer of plants, headcount, and distribution costs, so with fewer orders moving through its factories and distribution network, the company had less revenue over which to spread them. Adjusted EBITDA margin fell to 19% for the twelve months ended March 2023, from ~25% in 2021 [7].

Alongside these cost pressures, SWF also dealt with defects in its cordless lift mechanisms. According to Pari Passu channel checks, independent dealers reported that, following new industry-wide cordless safety regulations, the spring motors in SWF's shades frequently seized up within two to three years of installation, with the bulk of complaints surfacing between roughly 2023 and 2025. Because these are custom, installed products, each failure meant an unpaid service visit for the dealer rather than just a returned item, and the resulting pattern of callbacks reportedly did lasting damage to SWF's reputation in the dealer channel, the business's highest-margin segment. 

Pre-Restructuring Developments

SWF’s response to the stress centered on protecting profitability and cash flow while waiting for housing demand to recover. In 2023, management leaned on price increases to pass through input cost inflation, paired with cost reduction efforts such as consolidating shipping routes to lower its freight burden and working down a high inventory balance to release working capital. The company also relied on new product launches, aimed mostly at its residential offerings, to support volume and pricing. By late 2024, the posture had shifted from price to value, as SWF planned to limit price increases to stimulate demand from value-seeking consumers while continuing to invest in the business to be positioned for growth once conditions improved. 

However, the company's efforts could not overcome the macroeconomic headwinds. In 2024, the company was already seeing worsening liquidity due to cash burn from declining sales and shrinking EBITDA margins.  The company had negative $28mm free cash flow in LTM March 2023, which is before the $16.3mm term loan amortization, meaning the cash flow that period was negative ~$45mm [7]. By 2024, cash flow worsened even more, falling to negative ~$60mm [9].

Liquidity was also declining in part because of specific mechanics surrounding its ABL and RCF facilities. 

First, the ABL borrowing base was shrinking, resulting in lower amounts that can actually be borrowed under the facility. To note, ABL borrowing base is a formula-driven measure of availability, calculated as the sum of eligible accounts receivable and eligible inventory, each multiplied by its respective advance rate, less applicable reserves. As a result, the borrowing base moves with the underlying collateral: declining sales reduce the receivables balance, and a deliberate move toward a leaner inventory position reduces the inventory component, both of which shrink the amount the company can borrow under the facility. By the end of 2024, the borrowing base decreased to $47mm, compared to $112mm in 2021 [13].

While liquidity was falling from cash burn and a lower borrowing base, the RCF and the ABL also carried springing covenants that could further limit access to the facilities. The RCF had a springing maximum 1L net leverage covenant of 8.6x, tested only when more than 40% of the commitments, or $50mm, was drawn. This meant that once the RCF was drawn beyond $50mm, which we believe was the case by fall 2024, a 1L net leverage ratio above 8.6x would trigger an event of default under the facility. Based on rating agencies' adjusted EBITDA, the 1L leverage ratio was ~9.5x in September 2024; however, credit documents use covenant EBITDA, which is higher and includes additional add-backs. In any case, that September, the company had a 10% cushion from hitting the maximum 1L net leverage, meaning it was approaching default under its RCF as EBITDA and sales declined [9]. 

On the other hand, the ABL had a springing covenant with a minimum fixed charge coverage ratio (FCCR) of 1x when the ABL availability fell below 10% of total commitments. As a reminder, the fixed charge coverage ratio (FCCR) is usually calculated as (EBITDA less cash taxes less capex) divided by (interest expense plus mandatory debt repayments). It is a helpful gauge of whether the business can cover its required debt service after paying its fixed costs. It was reported that the company only had $23mm of real availability under the facility in September 2024 as FCCR was below 1x [9]. 

In total, SWF had $104mm available under the revolvers and $22mm of cash in September 2024. In fact, according to Pari Passu sources, the company did not have immediate liquidity needs, and negotiations were instead proactively initiated by lenders.