KB Toys Has Chap. 11 Plan

PITTSFIELD, MA-KB Toys has filed a plan or reorganization to emerge from bankruptcy. The toy chain, which operates about 600 stores, filed for Chapter 11 in January last year.

Prentice Capital Management will invest $20 million on the reorganized KB Toys and provide a credit facility of up to $25 million in exchange for 90% of the retailer’s stock. However, KB Toys executives are asking the bankruptcy court to allow it to conduct an auction where it would sell off its assets and leases.

KB Toys is left with about half of the stores it once operated. It started the mass closures last year after its Chapter 11 filing, and the company’s last closure announcement, of up to 238 units, was in October.

Executives have said that the mall-based chain was hurt by extreme competition and price wars. Now they expect for the company to emerge from bankruptcy before this year’s holiday season.

KB Toys is not the only toy retailer facing challenges from discounters like Wal-Mart. Earlier this year Toys ‘R’ Us closed all of its 146 Kids ‘R’ Us stores and its 36 Imaginarium educational stores. In March, the company sold its chain of nearly 1,500 stores worldwide to Vornado Realty Trust, Bain Capital and Kohlberg, Kravis, Roberts & Co. for $6.6 million.

In 2003, FAO Inc., owner of the famous FAO Schwarz toy chain, sold its flagship New York City and Las Vegas locations and closed its other 13 stores. FAO also liquidated its 89-store Zany Brainy chain and sold its 34 Right Start units.