KB Toys Finds Investor to Help It Emerge From Chapter 11

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KB Toys Inc. filed a proposed reorganization plan with the U.S. Bankruptcy Court of Delaware on May 13 that could see it emerge from Chapter 11 bankruptcy protection before the holiday season, the Pittsfield, MA, toy retailer reported this week.


According to press reports, KB Toys creditors recently filed a claim accusing the company's top executives and majority shareholder of improperly paying themselves $121 million before KB entered bankruptcy. KB executives and directors also face a lawsuit filed by the company's former owner Big Lots involving a $45 million debt.


The proposed reorganization announced Monday calls for private investment firm Prentice Capital Management LP to invest $20 million in KB Toys and provide a credit facility of up to $25 million in exchange for 90 percent of the common stock and 100 percent of the preferred stock of the reorganized KB Toys.


The deal can be terminated if KB Toys receives a better offer in a proposed bankruptcy auction.


KB Toys filed for Chapter 11 bankruptcy in January 2004. Since then, the privately held company has closed more than 600 stores, sold its Internet business, closed a distribution center and revamped its existing stores.


"Our customers have responded favorably to the more inviting store environment and the frequently updated store themes featuring constantly changing and new merchandise," KB Toys CEO Michael L. Glazer said in a statement.


Chantal Todé covers catalog and retail news and BTB marketing for DM News and DM News.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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